Hyperinflation, Deflation And Currency Wars

Saturday, June 23, 2012
By Paul Martin

SQ NOTE: Currency wars lead to shooting wars!

SteveQuayle.com
June 22, 2012

As I write this to you we are circling a deflationary drain that has put the squeeze into aggregate demand levels (total demand for goods and services) and driven down the aggregate asset prices (real estate) So in order to keep the USS Titanic of sinking any further the privately owned and unconstitutional Federal Reserve has turned on the magic printing press in the hopes of “stimulating” and propping up assets by Quantative Easing ( AKA “QE” which is a fancy way of saying printing money out of thin air.)

Helicopter Ben Bernanke (Look up why they call him “helicopter Ben” in order to appreciate the humor.) and the Reserve gum shoes are terrified of the US economic death spiral that has begun. Lack of liquidity, leading to lower consumption, leading to lower prices, leading to the whole economy grinding to a halt! So to prevent this the Fed has gone on a buying spree if you will, propping up one floundering asset after the next , buoying asset prices to prevent a deflationary dive, and injecting liquidity into the system to keep the magicians parlor tricks going. I would always say “when your only tool is a hammer, every problem becomes a nail.”

Think about it, over the last few months the Fed has bought over $2.3 Trillion of US treasuries, it has injected more and more “stimulus” but still we can not overcome this credit contraction. This is what happens when a nation demonizes it’s labor force by outsourcing, swallows the Bovine Excrement of “Consumer Economy” and relegates its once manufacturing might as something that is old hat and primitive. In other words the Globalist and Multinational Banks and Corporations have sold us a bad bag of goods via our “elected” leaders.

This brings us to HYPERINFLATION.

Now the economically aloof will say that it is a far off prospect, a better chance that the polar ice caps will melt in a “global cooling event”. I mean what most people would say is that with wages being driven down the way that they are, asset prices more or less stable, and credit market shrinking, hyperinflation sounds like some far off pipe dream of sycophantic doomsayer survivalist. Inflation is unlikely let alone hyperinflation. After all what most would argue is that deflation is the more likely candidate to run The United States of Ruin as the alternative is pure ridiculous. I am not an economist, I am though an avid, and I must say an astute student of history; and what history has taught me in the over 5000 years of human economic activity is this: Hyperinflation and inflation are and can be mutually exclusive.

What do I mean by that? Well in both cases of inflation and hyperinflation the currency losses it’s buying power. I’ll put it to you this way; inflation is when an economy overheats, it’s a demand driven phenomena in which a nations consumables (goods& services) are in great demand due to overabundance of credit that it drives the cost of the consumables to skyrocket causing goods and services producers to raise prices in order to keep up.

Hyperinflation is not like that. It is the total and complete loss of faith and buying power of a currency. Prices rise not because someone wants to be paid more for goods or services that they provide, or more money for their labor or commodity,prices rise because they want to get out of the currency, they do not want it any longer, they want less of it and are willing to pay a healthy some for any hedge against it.

Lets face the facts here. This government’s debt is 100% of GDP and the bloodletting has no end in sight. With a yearly fiscal budget shortfall of about 10% the Fed is purchasing TREASURIES in order to cover the shortfall on the government balance sheet. Thus they are fulfilling two objectives; one, help the government maintain aggregate supply levels (price of goods and services) and two, support asset prices in order to prevent any further deflationary erosion ( Like Realestate). So in the Feds calculations if you stabilize aggregate supply levels and prevent erosion of assets values you in turn would create an economic recovery, right?! WRONG!!!

Now follow closely to what I am about to say. We have never recovered from the September 2008 crash. All this talk about a “double dip” is a moot point as we never clawed our way from the first dip. The economy is as it has been for the last two years; heading down, no matter what all the talking heads on radio and TV say. For you see in trying to perform the same techniques which were applied with the crash of 1929 and 1933; the Fed has exhausted its cache of stimulus tools. They have done nothing and they have nothing left. After pumping trillions into stimulus plans, and trillions to improve balance sheets of the “Too Big to Fail” banks they have accomplished one thing; they have UNDERMINED TREASURIES!!!

Treasuries are the very threads that is holding this economy together and now these policies have metamorphosed them into the NEW AND IMPROVED TOXIC ASSET!!! Every world economy knows that they are overvalued, they know that their yields are mediocre and still no one in the main stream talking head shows ever rails against or even exposes them. The whole world cart blanche walks on eggshells around treasuries as if it were a Financial Nuke with a trip wire trigger and a timer. A bomb if you will….which IT IS.

History shows us a pattern when and how this financial Hiroshima goes off. It begins like this:

There will be a slight and sudden rise in a price of a necessary commodity like Oil

This will send tremors through the treasury yields, Treasury Mangers will sell off their allocations and go into the commodity (e.g. Oil) in order to grab a profit. I guarantee that they will sell treasuries as it’s the primary asset that many of them can sell.

This will trigger the Fed to step in and buy the dumped Treasuries as they are trying to stave off deflation by keeping low yields and cheaply funded. (Quantative Easing) The Fed knows that the Bond Market senses a “Treasury Bubble” and once again they turn on the printing press to buy every treasury in sight to calm the markets and create asset price stability

The Zombie “Too Big to Fail” Banksters smell blood in the water and begin to dump their obscene amount of treasury notes. You see these living dead institutions were never nationalized but got the best parts of nationalization; total liquidity (stimulus money) and easing of accounting and regulatory rules. The flip side was the Fed required that they purchase US treasuries. You see buying up of the treasuries allowed their balance sheets to look well funded and monetized, all the while hiding the toxic assets that were being siphoned off their books by the Fed since 2008.

The Panic sets in…Asset managers are not stupid they know the US is in much worse shape than Greece. They know that there is a “Treasury Bubble”. So when these mangers see the mass buying of treasuries by the Fed, and the mass dumping by the Zombie Banks, it will be their signal to get out of Dodge!!!

The Zombie To Big To Fails and Asset Managers that have dumped their toxic treasuries will look for a place to park their new found cash. Now where might you think they can put all that new cash into? COMMODITIES. Commodities of all types will shoot to the moon. From precious and industrial metals, Oil, food staples will all skyrocket in price, catching the American public with their pants down. Commodities will be the only safe haven to go to and this is when the American public will get it’s first taste of hyperinflation and it will taste like gasoline when the price of oil surges passed $150 a barrel in one week equating to $10 a gallon gas!!!

Commodities SOARS and DOLLAR COLLAPSE ensues. The sell off of assets in purchase of commodities will be ballistic. People will unload homes, cars, personal belongings all once thought important for real assets like Gold, Silver, Food, Weapons, and Oil. In hyperinflation your $400,000 house will be worth $60,000 or 70 pieces of silver, for your house will not be able to help you buy things you need, while a commodity like gold and silver can.

Most of all the government can’t stop it.

II. Currency Wars

Another front is brewing in this mass pandemonium that is hurling toward us in thunderous fashion. That is the currency war that is beginning to heat up. You see during the 90′s America went through it’s dot com boom primarily off the money that it borrowed from the Chinese and other foreign investors. So when the dot coms became the dot bombs, and when that bubble Burst the banksters at wall street and the financial mafia running the Fed needed fresh meat. After all the Chinese will be not so willing to throw their money into another tech stock venture with the US. at that time Alan Greenspan cut interest rates down to an unheard of 1% and eased bank lending. Thus in turn creating the housing bubble that was one sub-prime needle away from being popped. Now while all this was transpiring many political hacks and think tanks in the”District of Criminals” were beginning to complain that the Chinese were not allowing their currency the Yuan to float,that the Chicoms were artificially keeping it’s value low. In turn creating a very large trade surplus for them, and a large trade deficit for us.

If you have been following the news lately, you would have been hearing the vast levels of complaining within the Anglo-American financial houses, the vast monetary disparity with the Chinese Yuan and even the Euro. In fact it is my opinion that this summers Euro collapse was a orchestrated act of financial warfare perpetrated by the British and American banking interests. That I will leave for another time. It is comedic that many in positions of power feel that it is the Chinese that is to blame for the economic dearth that we are facing. Now the madmen are sensing that the Wall street Casino may be closing, and in a last ditch play to make profits, and grab power.The overlords at the Fed and the Banksters on Wallstreet are in a race to the bottom. Devaluing the dollar as some sick way of kick starting the make believe economy. Hoping that a devalued dollar will make us more competitive in trade.

One thing that I will tell you is that in a currency war no one Is a winner. Von Mises the famous Austrian economist that invented the Austrian school of economics said it best when he said that the way to destroy your middle class is to devalue your currency.

Back prior to 1913 and the creation of the creature that we now know as the Federal Reserve, a country’s currency was essentially it’s stock. A nation that produced, and sold it’s good and wares had a very strong currency affording it’s citizens a very good quality of life. Gold was the anchor that tied the majority of nations currencies back then, preventing the creation of economic bubbles, guaranteeing the stability of sound economic policies and power of wealth in the hands if the citizen.

Today money printed out of thin air and backed up by nothing is the order of the day. As we traverse into the current state of affairs, history has once again proven that fiat (by edict) currencies and central banks are failures. By engaging the Chinese, Japanese and Europeans in a currency war, a race to the bottom will do nothing but destroy us and what is left of our middle class. By trying to hit cheap Chinese goods with a tariff will incense the Chinese even more. This is not something that you want to do, especially since they are still the largest holders of your debt.

V

Leave a Reply