excerpts
http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen


Quote:

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena. Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

This is to help you understand the difference between inflation and hyperinflation. Although the author says that they look the same, I actually disagree. Hyperinflation is born of different economic triggers and is far more frantic and destructive


Quote:

Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy. This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down. But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.) It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion— —but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together. In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

This explains the bond bubble which is not only a US issue but also a European issue. The difference between the two economies is that Europe is looking to avoid a hyperinflation outcome through austerity economics but the US is not.

you will have to check out the link to understand further the implications because when I tried to post more excerpts, the editing function determined certain terms used to be spam.

Sappho wrote on Aug 24^th, 2010 at 11:55am:

excerpts http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen Quote: Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena. Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency. This is to help you understand the difference between inflation and hyperinflation. Although the author says that they look the same, I actually disagree. Hyperinflation is born of different economic triggers and is far more frantic and destructive [quote]Right now, the U.S. government is indebted to about 100% of GDP, with a yearly fiscal deficit of about 10% of GDP, and no end in sight. For its part, the Federal Reserve is purchasing Treasuries, in order to finance the fiscal shortfall, both directly (the recently unveiled QE-lite) and indirectly (through the Too Big To Fail banks). The Fed is satisfying two objectives: One, supporting the government in its efforts to maintain aggregate demand levels, and two, supporting asset prices, and thereby prevent further deflationary erosion. The Fed is calculating that either path—increase in aggregate demand levels or increase in aggregate asset values—leads to the same thing: A recovery in the economy. This recovery is not going to happen—that’s the news we’ve been getting as of late. Amid all this hopeful talk about “avoiding a double-dip”, it turns out that we didn’t avoid a double-dip—we never really managed to claw our way out of the first dip. No matter all the stimulus, no matter all the alphabet-soup liquidity windows over the past 2 years, the inescapable fact is that the economy has been—and is headed—down. But both the Federal government and the Federal Reserve are hell-bent on using the same old tired tools to “fix the economy”—stimulus on the one hand, liquidity injections on the other. (See my discussion of The Deficit here.) It’s those very fixes that are pulling us closer to the edge. Why? Because the economy is in no better shape than it was in September 2008—and both the Federal Reserve and the Federal government have shot their wad. They got nothin’ left, after trillions in stimulus and trillions more in balance sheet expansion— —but they have accomplished one thing: They have undermined Treasuries. These policies have turned Treasuries into the spit-and-baling wire of the U.S. financial system—they are literally the only things holding the whole economy together. In other words, Treasuries are now the New and Improved Toxic Asset. Everyone knows that they are overvalued, everyone knows their yields are absurd—yet everyone tiptoes around that truth as delicately as if it were a bomb. Which is actually what it is.

This explains the bond bubble which is not only a US issue but also a European issue. The difference between the two economies is that Europe is looking to avoid a hyperinflation outcome through austerity economics but the US is not.
[/quote]

There is In-flation, Hyper-in-flation, Stag-flation & De-flation. We have experienced the standard in-flation Globally, for quite some time, with ocassionally the other 3 making a short term appearance, locally & rarely Globally.  

We now have Global De-leveraging, which in turn is making way for De-flation, which the US Federal Reserve is desperate to avoid, as they have seen what can happen, simply by looking at the Japanese experience 1990-2010.

However, history does not do exact duplications and the current situation is different to the Japanese experience, in a number of aspects and so the outcome of current events will also differ.

I think that the 2nd leg of this GFC is now under way and another substantial fall on world share markets is likely by the end of this year, probably around October.

Over this period immediately ahead, it is likely that De-flation will be with us, Globally. However, at some point and in some places, Hyper-in-flation may also get into the act and the scenario presented in this article is quite plausible, particularly for a country such as the USA.
http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

The US$ is the Global currency, Oil is priced almost exclusively in the US$ and the US Deficits & Debts are now racing, out of control. The US$ is also regarded as THE SAFE HAVEN currency, so it is now rising against a background of rising fear, as the prospect of a deeper Recession looms.

That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt.

Under either scenario, our goose is cooked!

perceptions_now wrote on Aug 24^th, 2010 at 3:26pm:

There is In-flation, Hyper-in-flation, Stag-flation & De-flation. We have experienced the standard in-flation Globally, for quite some time, with ocassionally the other 3 making a short term appearance, locally & rarely Globally.

Whilst I or the article do not suggest that Hyperinflation will impact all nations affected, I and the article are suggesting that it will impact the US.   


Quote:

We now have Global De-leveraging, which in turn is making way for De-flation, which the US Federal Reserve is desperate to avoid, as they have seen what can happen, simply by looking at the Japanese experience 1990-2010.

Deflation, Inflation and Stagflation are all related to supply and demand economics. Hyperinflation relates to the lack of faith in a currency used within supply and demand economics. So it is perfectly reasonable to deflate as an economy whilst at the same time suffering hyperinflation.

Regarding Japan: I find it interesting that the US think they can apply the same kind of quantitative easing and expect to succeed. They can't of course, because in the Japanese situation savings were collateral for Govt. debt, whereas the people in the USA don't save much.


Quote:

I think that the 2nd leg of this GFC is now under way and another substantial fall on world share markets is likely by the end of this year, probably around October.

Funny you should mention that. The Hindenburg Omen has been seen again... that is, sharp rises and falls in same day trading of about 70 to 80 points has been noted 3 times in the last 2wks. This Omen when seen tends to portend in approx 77% of cases, a market crash within the next short time... about 20 days.


Quote:

Over this period immediately ahead, it is likely that De-flation will be with us, Globally. However, at some point and in some places, Hyper-in-flation may also get into the act and the scenario presented in this article is quite plausible, particularly for a country such as the USA. http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

Yeah... I know. It's the same article I took excepts from and also quoted. Thing is, it makes not mention of Europe suffering the same fate. Nor will it since they have been proactive in engaging austerity measures to bring down their sovereign debt obligations.


Quote:

The US$ is the Global currency, Oil is priced almost exclusively in the US$ and the US Deficits & Debts are now racing, out of control. The US$ is also regarded as THE SAFE HAVEN currency, so it is now rising against a background of rising fear, as the prospect of a deeper Recession looms.

Indeed, when the run on treasuries is in full flight the cash from those sales will be equally worthless and so exchanged for commodities such as oil. Now what happens when there is hyper demand for commodities such as oil? The price inflates and inflates at a hyper rate. As that article points out, it would be no surprise to see the gallon rise from $10US to $150US in a week or just over a week.

Now that has an impact on every bowser globally. Just imagine paying 5 to 10 times more for your petrol in a matter of days. And it is not only petrol for which oil is used... there are the petrochemicals used in agriculture... so expect food prices to rise also.

That said, although the rest of us wont dive into an hyperinflation crisis, we will feel the impact of the hyperinflation suffered by the US.


Quote:

That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt.

It will begin as a run on treasures. Everyone will want to dump their treasuries and convert the cash into something of value.

That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt.

Under either scenario, our goose is cooked!
This would also be the end of the capitalist system.
Argentina and Russia defaulted some years ago, how much did the bondholders get in the dollar?
Another thing is, that to every debit there is a opposite credit, so who are the creditors.
I,am no financial expert, but I think Australia will get into trouble with too much money in the super funds looking for a place to invest.
When Argentina and Russia defaulted, the main losers were the German and italian private super funds.

hawil wrote on Aug 24^th, 2010 at 5:38pm:

That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt. Under either scenario, our goose is cooked! This would also be the end of the capitalist system. Argentina and Russia defaulted some years ago, how much did the bondholders get in the dollar? Another thing is, that to every debit there is a opposite credit, so who are the creditors. I,am no financial expert, but I think Australia will get into trouble with too much money in the super funds looking for a place to invest. When Argentina and Russia defaulted, the main losers were the German and italian private super funds.

Who are the creditors? Japan, China, Hedge Funds/ Super Funds and Commercial Banks in the main.

One would hope that Super Funds can see the coming calamity and get in early to sell their treasury holdings and convert the cash to commodities.

Otherwise, I would not be too worried about AU national debt, because like Japan our savings (super funds) are collateral for our debt. Do be worried however, if the govt. do decided to get their dirty mits on our super savings as has been speculated in the past by Krudd.

Sappho wrote on Aug 24^th, 2010 at 5:35pm:

perceptions_now wrote on Aug 24th, 2010 at 3:26pm: There is In-flation, Hyper-in-flation, Stag-flation & De-flation. We have experienced the standard in-flation Globally, for quite some time, with ocassionally the other 3 making a short term appearance, locally & rarely Globally. Whilst I or the article do not suggest that Hyperinflation will impact all nations affected, I and the article are suggesting that it will impact the US.

Whilst I agree that direct Hyper-in-flation is possible in the USA, it will likely follow after De-flation and whilst Hyper-in-flation may not afflict other nations directly, but they will  be affected in-directly by the flow on effects from the USA!

hawil wrote on Aug 24^th, 2010 at 5:38pm:

That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt. Under either scenario, our goose is cooked! This would also be the end of the capitalist system. Argentina and Russia defaulted some years ago, how much did the bondholders get in the dollar? Another thing is, that to every debit there is a opposite credit, so who are the creditors. I,am no financial expert, but I think Australia will get into trouble with too much money in the super funds looking for a place to invest. When Argentina and Russia defaulted, the main losers were the German and italian private super funds.

Current events, will certainly bring to a close, the existing Capitalist franchise and most likely bring massive change to the Political arena!

perceptions_now wrote on Aug 25^th, 2010 at 11:33am:

Sappho wrote on Aug 24th, 2010 at 5:35pm: perceptions_now wrote on Aug 24th, 2010 at 3:26pm: There is In-flation, Hyper-in-flation, Stag-flation & De-flation. We have experienced the standard in-flation Globally, for quite some time, with ocassionally the other 3 making a short term appearance, locally & rarely Globally. Whilst I or the article do not suggest that Hyperinflation will impact all nations affected, I and the article are suggesting that it will impact the US.    Whilst I agree that direct Hyper-in-flation is possible in the USA, it will likely follow after De-flation and whilst Hyper-in-flation may not afflict other nations directly, but they will  be affected in-directly by the flow on effects from the USA!

What are you talking about?

Whilst currency is becoming valueless through hyperinflation, what is happening to the economy? Is it growing at a hyper fast speed? Is it merely growing? Is it stagnating? Is it deflating?

I don't understand what you mean. Hyperinflation relates to the debasing off currency. Inflation, Deflation and Stagflation relate to the health of the economy.

currency and economy are two different things. so again... whilst currency is debasing due to hyperinflation, what is the economy doing.

Sappho wrote on Aug 24^th, 2010 at 5:53pm:

hawil wrote on Aug 24th, 2010 at 5:38pm: That said, at some point, the realisation will dawn that neither the USA or its $ are actually safe and at that point, the US$ will De-value substantially, either deliberately or by accident or the USA will De-fault on its Debt. Under either scenario, our goose is cooked! This would also be the end of the capitalist system. Argentina and Russia defaulted some years ago, how much did the bondholders get in the dollar? Another thing is, that to every debit there is a opposite credit, so who are the creditors. I,am no financial expert, but I think Australia will get into trouble with too much money in the super funds looking for a place to invest. When Argentina and Russia defaulted, the main losers were the German and italian private super funds. Who are the creditors? Japan, China, Hedge Funds/ Super Funds and Commercial Banks in the main. One would hope that Super Funds can see the coming calamity and get in early to sell their treasury holdings and convert the cash to commodities. Otherwise, I would not be too worried about AU national debt, because like Japan our savings (super funds) are collateral for our debt. Do be worried however, if the govt. do decided to get their dirty mits on our super savings as has been speculated in the past by Krudd.

Let me put it this way, Hedge /Super Funds & Banks are still locked into the current commercial paradigm of stort term returns, so they will follow what "they perceive from past experience", as the best short term returns, until the herd mentality takes over.

China, on the other hand, are already lessening their support of US Treasury, by around US$100 Billion in the last year.

Further, I would not bank on (pun intended) Hedge /Super Funds or Banks, seeing the writing on the wall and moving a substantial amount of their investments out of the way.
In fact, if they did so, it may actually speed up the decline in shares, by removing funds from that arena?

Now, allow me to roam a little?

I suggest that most of the probably, even likely scenario's have occurred to "them", those who are the real holders of power!

I also suggest that co-incidences don't happen too often!

I also suggest that they will have a number of contingency plans!

Finally, I suggest that it is likely that an emergency will arise and a De-fault or De-valuation will take place!

Now, let me go back to the first point, where most of the likely scenario's have occurred to them and in that case they would have known for quite some time that a number of major factors would come together, in the period around 2000-2050, those being -
1) Peak Essential Resources, including Oil, to some extent Coal & other essential resources.
2) Population Aging, the Baby Boomer Bust.
3) Population Decline, as is already being experienced in Japan & parts of Europe.
4) And, most importantly climate Change, which would have dramatic affects on the Absolute Essentials of Food & fresh Water, but also in the most Essential resource of all, the possible Extinction of humanity.

So, given that most scenarios have occurred to "them" and that co-incidences don't happen too often and that agreement between various interest groups & indeed countries was/is unlikely, perhaps we should wonder what contingency plans have been enacted already and what still awaits us?

p_n<<perhaps we should wonder what contingency plans have been enacted already and what still awaits us?>>
......................................................................................
I would be most surprised if anyone in our bureaucracy has any contingency plan in place, or has even considered the need for one.

I think it will be every man for himself (and woman). We are in the fortunate position of being forewarned thanks to the few economists that had their finger on the pulse.

Now, allow me to roam a little?
Allow me to follow suit
China is almost in a  no win situation, they lent the USA so much that if they start pulling their investments out too fast,they will devalue them and finish up losers, the same if the hedge/super funds start selling the equities to fast; the first out the door maybe the winners.
It actually happened not long age, remember the shares of some compaqnies losing 50% of value and then within 18 almost doubling, although not reaching their previous levels, but there big winners and big losers.
The people who did not lose were the managers of others peoples money.
Being a cynic, I sometimes wonder if the managers are not selling shares that they manage at low point and buying at the same time on their own behalf, and do the opposite when the bulls are running; would be very hard to find out.
Now if capitaism should collapse, what can it replace, Socialism or call Communism would definitely be better if it were not run by people who are even more greedy than the capitalists, and the workers do not think that all the lunches are free.
The number of Russian billionaires is a good example, and the richest man in the world comes from Mexico, but in Mexico everybody is millionair judging by all the Americans who want to go iullegally to work in Mexico.
Now I,am being a bit facetious.

hawil wrote on Aug 25^th, 2010 at 3:51pm:

Now, allow me to roam a little? Allow me to follow suit China is almost in a  no win situation, they lent the USA so much that if they start pulling their investments out too fast,they will devalue them and finish up losers, the same if the hedge/super funds start selling the equities to fast; the first out the door maybe the winners. It actually happened not long age, remember the shares of some compaqnies losing 50% of value and then within 18 almost doubling, although not reaching their previous levels, but there big winners and big losers. The people who did not lose were the managers of others peoples money. Being a cynic, I sometimes wonder if the managers are not selling shares that they manage at low point and buying at the same time on their own behalf, and do the opposite when the bulls are running; would be very hard to find out. Now if capitaism should collapse, what can it replace, Socialism or call Communism would definitely be better if it were not run by people who are even more greedy than the capitalists, and the workers do not think that all the lunches are free. The number of Russian billionaires is a good example, and the richest man in the world comes from Mexico, but in Mexico everybody is millionair judging by all the Americans who want to go iullegally to work in Mexico. Now I,am being a bit facetious.

Yes, China is, as they say, between a rock & a hard place, they will be hurt if they stay & hurt if they go.

That said, they do seem intent on slowly reducing their USA exposure, as has been shown by their $100 Billion reduction, over the last year, which I suspect they will continue at pace quick enough to recover what is possible, but hopefully not so quick as to bring down the house of cards, too early!

Finally, there may need to be a new Capitalism MK2, something with a few alterations, so that it can work in the new Political & Economic paradigm?

Finally, there may need to be a new Capitalism MK2, something with a few alterations, so that it can work in the new Political & Economic paradigm?

What do you have in mind; please elaborate.

Interestingly people are lining up to commit financial suicide purchasing international bonds, especially US treasuries, like they're going out of style.

Hyperinflation in the states has the potential to do serious financial damage to China, especially if the fed cranks the usual lever to counter it; rates.  Pretty ordinary time to own a ~USD$1Trillion in fed paper.

With rates at historic lows with nary a risk premium in sight, bond values can only go one way when rates inevitably move up.

Fortunately consumer confidence in the US is shot to pieces and unemployment is rampant.

It'd be interesting to see how China would react to the collapse of the US Bond Market; wouldn't be the first bond crisis; but they'd expect their pound of flesh I'd wager.

congratulations! the most useful thread here for a long time.
Good work.
This has been all over the net for the last two years in analytical commentary sites, and the Australian media is juuust waking up to it now.
Australia is one of the world's great gold producers, and a pretty handy commodity to have in your sovereign wealth fund (i.e. "the bank", or "the treasury") when these things happen. Does Australia have gold....Noooo, the government sold it all in the mid 90s.

And you wonder whether the Australian government OR bureaucracy have a "contingency" plan. Since when do Australian governments or bureaucracies have contingency plans? They don't.
You can only have a health economy that actually produces something, not just a whole lot of people shuffling paper between each other, and a good surplus and no debt to survive these things.
Do we have that??   Nooooo.  *should* we have that given our resources....yyyyessss!
Do we have a functioning government? No.
Let's hope we get one (that can work) before the meltdown.

if American crashes, my friends, and that is a very distinct possibility now, where does that leave Australia? Think about that.

shampain socialist wrote on Aug 26^th, 2010 at 11:17pm:

if American crashes, my friends, and that is a very distinct possibility now, where does that leave Australia? Think about that.

Wherever goeth the USA, so goeth the world!

I think it was actually, if the USA catches a cold, then the rest of the world catches Pneumonia, but I like the shorter version.

No matter what the future may bring or what others may say now, we are all still in lock-step with the USA, at this time.

not quite. We will not crash as heavily as America and most of the rest of the world if we do our housekeeping properly. Don't have massive deficits, save our industries, ACTUALLY MANUFACTURE SOMETHING, and very importantly for individuals - DON'T HAVE DEBT.
These things are what the world has not been doing for a long time, a crash had to come.
The bigger problem is international instability, and the disintegration of old alliances. Australia's greatest ally has been America, and much less so, Britain.  The whole alliance structure will probably need to be restructured. New world coming for sure.

shampain socialist wrote on Aug 27^th, 2010 at 6:27pm:

not quite. 1) We will not crash as heavily as America and most of the rest of the world if we do our housekeeping properly. 2) Don't have massive deficits, save our industries, ACTUALLY MANUFACTURE SOMETHING, 3) and very importantly for individuals - DON'T HAVE DEBT. These things are what the world has not been doing for a long time, a crash had to come. The bigger problem is international instability, and the disintegration of old alliances. 4) Australia's greatest ally has been America, and much less so, Britain.  The whole alliance structure will probably need to be restructured. 5) New world coming for sure.

1) I agree, but it may not seem that way, to most Australians.
2) I agree, out Deficits are not huge, at present, by international comparison.
3) I'm not sure if you mean individuals or government here. If you are referring to government, again I would agree, our National Debt is not huge, at present, by international comparison.

However, if you are referring to individual Debt, I would disagree, see following -
http://www.whocrashedtheeconomy.com/householddebt.gif

In respect of Personal Debt, there is a "large Monkey on our back" and it comes courtesy of housing mainly, but not solely.
http://whocrashedtheeconomy.com/2004-09-24%20reserve%20Bank%20warns%20on%20debt%20levels%20226233.jpg
4) Agreed, particularly in more recent times, post WW2.
5) Yes, but I'm not sure that it will be all that likeable, for many!


Graph & Pic, courtesy of -
http://www.whocrashedtheeconomy.com/?page_id=3

I know you're reading the same stuff as I do, perceptions, so you have a good handle on what is really going on. Scary isn't it.

I am very uncomfortable with "international comparisons". Just because others are basket cases is no justification for us to be on the same track, but lucky enough to have avoided it so far. That isn't good housekeeping by the government. Labor was handed a very healthy surplus and there were 11 surpluses in a row and no adverse social affects as a result. They stuffed that up within one single term and just kept promising more of the same during the election campaign. Labor are profligate with money, always have been, they have no idea at all how to save.

Australia is a major gold producer in the world. Our currency is solid, but floating, so we are the whims and mercies of these wayward economies overseas. Our currency should be a gold-based one, LIKE IT USED TO BE (aka Australian Gold Sovereigns), and a silver based one, that would make us unassailable, and we would not have the obscene levels of inflation that destroys people's savings, disadvantages people trying to buy homes, but allows profligate psychopathic party political governments to spend up big and make themselves look good.
Other countries have gold based currency, most notably these days the Islamic block. Do they know something that we don't? I would think so.
Gold is solid money that can't be counterfeited or inflated away by governments, and it is the people's protection from such con jobs.
Why can't this country ever take the lead, rather than bowing and scraping to other countries?

For anyone who is interested: -

Turn to ABC News 24 for a replay of this week's Four Corners...

qikvtec wrote on Aug 26^th, 2010 at 10:58pm:

Interestingly people are lining up to commit financial suicide purchasing international bonds, especially US treasuries, like they're going out of style. Hyperinflation in the states has the potential to do serious financial damage to China, especially if the fed cranks the usual lever to counter it; rates.  Pretty ordinary time to own a ~USD$1Trillion in fed paper. With rates at historic lows with nary a risk premium in sight, bond values can only go one way when rates inevitably move up. Fortunately consumer confidence in the US is shot to pieces and unemployment is rampant. It'd be interesting to see how China would react to the collapse of the US Bond Market; wouldn't be the first bond crisis; but they'd expect their pound of flesh I'd wager.

Almost everyone on the planet has spent a life time living "the current paradigm and they are unlikely to change their ways, without a massive shock to the system.

It would seem unlikely that the status quo will continue on the inflation front.

However, both De-flation & Hyper-in-flation are still in the game!

China are already trying to lessen their US exposure, but it is a very difficult game to play, in the current circumstances and it is more likely that the applecart will be upset at some point and then things get extremely difficult!

shampain socialist wrote on Aug 27^th, 2010 at 7:37pm:

I know you're reading the same stuff as I do, perceptions, so you have a good handle on what is really going on. Scary isn't it.

What is so scary? If you are reading the situation correctly then you would see this as an opportunity and take advantage of that. I did. I am.

It's not the end of the world you know. It may be the beginning of another world war, but lets face it, in the history of humans, war is more common than peace. It may be the beginning of political change (America has been predicted to come out of this mess a dictatorship did you know), but like war, political shifts happen. It may mean that many of us are a little less affluent, which is a bonus for community mindedness, since people are inclined to turn to people instead of things in times of poverty and poor supply.

What's more, humans are enterprising and industrious so will pick themselves up and dust themselves off and start all over again.

You may think change is scary, but I think it is an exciting opportunity.


Quote:

Gold is solid money that can't be counterfeited or inflated away by governments, and it is the people's protection from such con jobs. Why can't this country ever take the lead, rather than bowing and scraping to other countries?

Hmmm.... maybe we aren't reading the same material. I liquidated all of my cash assets in 2005 and put that into gold... more than doubled my liquid asset base. A couple of months ago, when the AUD was almost at parity with the USD and gold had stabilized it's value, I got out and into USDs. Very shortly I will be moving those American bucks into silver because there is more scope for upward movement in the price of silver than there is in gold.

Commodities in general however are a good place to park your money if you are playing long and long is the only way to play at the moment.

I think your strategy was a good one, perceptions. Wise and finger on the pulse. I would be very careful of the U.S dollar though. Apart from that, yes, silver and the commodities. Aus dollar is commodity based so if commodities fall heavily in a crash, maybe a good opportunity to buy back into the aussie at that time. Long in gold and silver though sounds like a good strategy, at least in Australia.

shampain socialist wrote on Aug 28^th, 2010 at 4:38pm:

I think your strategy was a good one, perceptions. Wise and finger on the pulse. I would be very careful of the U.S dollar though. Apart from that, yes, silver and the commodities. Aus dollar is commodity based so if commodities fall heavily in a crash, maybe a good opportunity to buy back into the aussie at that time. Long in gold and silver though sounds like a good strategy, at least in Australia.

I don't know if you are talking to perceptions or myself, but since you make mention of my shift to silver, I'll assume it is me you are speaking to.

The key to playing the long game is understanding the current climate. I went long on gold, because there was serious concern about the USD being devalued. I didn't necessarily predict the housing bubble blowout... but it did serve my gold value well when it did blow out.

I'm moving into silver now, because it has not had as much movement as a result of this GFC as has gold. It is undervalued in relation to gold then and has a lot of scope for movement. I am betting on the jittery markets turning to panic again and the subsequent shift from currency to commodities but with less scope for gold because it is already being held by too many resulting in the purchase price at its premium. Now, if you can't buy into stable gold because it is at its premium price, Silver becomes one of the next best option yes? So, as demand for Silver increases so does its price, which is good for me, because I will have already entered that market at the lower end price.

It has to be remembered that liquid assets do not generate interest, they actually cost money... I mean you have to store the stuff for one thing. So when going into the commodities market, you really have to be sure of what you are doing.

Going into gold now, when it has limited upwards movement left in it, is a recipe for disaster for your liquid assets holdings. The costs in holding that gold are going to strip your asset base.

it turned out I was talking to you, saph, but I thought it was perceptions, but actually both really.

If there is an almighty crash as they are saying, then gold (and silver of course) could go into the stratisphere.
I have done pretty much what you have done. There is a high fear factor in the world for a while now and it seems to be getting worse. That's good for gold, but silver hasn't really been affected that much, but there is commentary that it will.

What I read too, is that there is a concern around the world about non physically held gold i.e. gold "in storage" or "certificates", and whether there is actually the physical commodity there to back it up.
Perth Mint seems to be a good alternative, as the only government backed Mint left in the world, but, in the end, is the gold there?
Does the U.S. government really have the gold in storage that it is supposed to have; because if it does not, the price will go ballistic.

on top of the storage costs, saph, the cost of freighting actual delivery of gold and silver is prohibitive.

Sappho wrote on Aug 28^th, 2010 at 4:32pm:

shampain socialist wrote on Aug 27th, 2010 at 7:37pm: I know you're reading the same stuff as I do, perceptions, so you have a good handle on what is really going on. Scary isn't it. What is so scary? If you are reading the situation correctly then you would see this as an opportunity and take advantage of that. I did. I am. It's not the end of the world you know. It may be the beginning of another world war, but lets face it, in the history of humans, war is more common than peace. It may be the beginning of political change (America has been predicted to come out of this mess a dictatorship did you know), but like war, political shifts happen. It may mean that many of us are a little less affluent, which is a bonus for community mindedness, since people are inclined to turn to people instead of things in times of poverty and poor supply. What's more, humans are enterprising and industrious so will pick themselves up and dust themselves off and start all over again. You may think change is scary, but I think it is an exciting opportunity. Quote: Gold is solid money that can't be counterfeited or inflated away by governments, and it is the people's protection from such con jobs. Why can't this country ever take the lead, rather than bowing and scraping to other countries? Hmmm.... maybe we aren't reading the same material. I liquidated all of my cash assets in 2005 and put that into gold... more than doubled my liquid asset base. A couple of months ago, when the AUD was almost at parity with the USD and gold had stabilized it's value, I got out and into USDs. Very shortly I will be moving those American bucks into silver because there is more scope for upward movement in the price of silver than there is in gold. Commodities in general however are a good place to park your money if you are playing long and long is the only way to play at the moment.

Well, as I said in another post, "Almost everyone on the planet has spent a life time living "the current paradigm and they are unlikely to change their ways, without a massive shock to the system."

And, what you said here confirms that!

All that I said is factual, but no matter how much is said, people will not believe that anything will really change, because it has "always been this way", which of course it hasn't.

So, no matter what is said, people will not voluntarily make the changes needed, as is shown by acceptance that World War 3 would not be scary, it would be an exiting opportunity.

As I said, people are unlikely to voluntarily change, so either change will be forced &/or there will be a massive shock to the system, by accident or part of that forcing.

I would also caution care with Gold, as in my opinion it would require physical holding, which is costly, but also subject to dangers.

Btw, if you really think WW3, which would be fought with Nuclear weapons, would not destroy every facet of Global human sociey, then I suggest you need to get up to speed on the affects of nuclear war, as a minimum!

What a load of crap this thread is.  Anyone believes that inflation and hyperinflation is soon to follow go breathe in some water.

Perceptions Now is closest to the mark when he says deflation is the most likely outcome at the moment.

For anyone concerned about hyperinflation from debt, deficit, stimulus packages I ask you to turn your attention to Japan where they have had a massive deficit and have been bordering on deflation for years.

Quote:

What is so scary? If you are reading the situation correctly then you would see this as an opportunity and take advantage of that. I did. I am. It's not the end of the world you know. It may be the beginning of another world war, but lets face it, in the history of humans, war is more common than peace. It may be the beginning of political change (America has been predicted to come out of this mess a dictatorship did you know), but like war, political shifts happen. It may mean that many of us are a little less affluent, which is a bonus for community mindedness, since people are inclined to turn to people instead of things in times of poverty and poor supply. What's more, humans are enterprising and industrious so will pick themselves up and dust themselves off and start all over again. You may think change is scary, but I think it is an exciting opportunity.

Umm...did you just slip that one in there?
No..there will be no world war. People, and most especially the ones who created the downfall will cop it on the chin and accept their financial losses due to their own greed.
They will be made responsible and they will stop stealing our money to prop them up just to make the same stuffups all over again.

Don't for a second accept war for money.....or you will be severely dealt with..OK?  ;Di

No, I didn't just slip that one in. I based it on the fact that most major financial crises precede a major war... so says history.

Edit: More tragically, in the last century, financial crises and socialism brought with them ethnic cleansing. It wasn't just the jews that were cleansed in WWII you know. Hitler had many precedents to help decide his final solution.

Now if the last century is any thing to go by... you wouldn't want to be a Muslim in a Western Nation about now. Oh but wait... France is already calling for the return to French values, banning Muslim head wear... LOL.

Sappho wrote on Aug 29^th, 2010 at 10:33am:

No, I didn't just slip that one in. I based it on the fact that most major financial crises precede a major war... so says history. Edit: More tragically, in the last century, financial crises and socialism brought with them ethnic cleansing. It wasn't just the jews that were cleansed in WWII you know. Hitler had many precedents to help decide his final solution. Now if the last century is any thing to go by... you wouldn't want to be a Muslim in a Western Nation about now. Oh but wait... France is already calling for the return to French values, banning Muslim head wear... LOL.

As I said in an earlier post, "if you really think WW3, which would be fought with Nuclear weapons, would not destroy every facet of Global human sociey, then I suggest you need to get up to speed on the affects of nuclear war, as a minimum!"

As I have also said numberous times, "this time is different".

In terms of the Economic effects, the current GFC is a very different and is but the start of a much more omminous event than anything that has come before and the same applies to your war correlation. A World War now would not the same as previous World Wars, as bad as they were then, a new WW would cause unimaginable destruction.

If it gets to that point, there will be no winners!

Money, Gold & all those things that you may think will present exciting opportunities, will simply vanish, in the blink of an eye.

That must be avoided, even at the cost of you missing out on a good return on your investments?

I suggest the status quo in Economics & Politics is not, can not and will not be sustainable.

We need to move on, before we are moved on!

The real question is, can we "fast forward" human nature enough, either voluntarily or in-voluntarily, to achieve a breakthru velocity, before time runs out? 

A major war is not necessarily a world war. Remember war is more common than peace. Also remember that major wars are not necessarily initiated by the West. I find it absurd, they you not only ignore the lessons of history... you outright deny human history as being relevant.

I question your 'this time it is different' mantra... The reason we are in a crisis is the very same reason that brought with it the Great Depression... A Credit Crunch.

This time however, rather than let the system collapse and cleanse itself of the inefficient financial and corporate muck, the govt is looking to save it, because they have become 'too big to fail' and in the process they are learning just how big their failures that cannot fail really are. Saving these failed entities is creating yet another bubble... the bond bubble, which if not fed by outside sources, is fed by monetization.

You speak of fast tracking change... well Human nature is not up to it. The greater the change, the greater the resistance to that change... is how human nature works. Anyone who works in change management knows this.

Slowly, slowly, catchy monkey... in case you hadn't heard.

Senexx wrote on Aug 28^th, 2010 at 9:56pm:

What a load of crap this thread is.  Anyone believes that inflation and hyperinflation is soon to follow go breathe in some water.

Did you read the link? Do you understand the difference between Inflation that acts on the economy and Hyperinflation that acts on the currency?


Quote:

Perceptions Now is closest to the mark when he says deflation is the most likely outcome at the moment.

No one is disputing that the US is a deflating economy. You can have an economy deflating whilst the currency hyper-inflates.


Quote:

For anyone concerned about hyperinflation from debt, deficit, stimulus packages I ask you to turn your attention to Japan where they have had a massive deficit and have been bordering on deflation for years.

Crucial point you fail to note is that Japan save and those savings act as collateral. The US does not save in anywhere near the same numbers and therefore have no collateral to justify their excessive debt.

The USD is not worth what it is claimed to be worth... and this little truth is reverberating throughout all markets globally.

Sappho wrote on Aug 29^th, 2010 at 12:05pm:

1) A major war is not necessarily a world war. Remember war is more common than peace. Also remember that major wars are not necessarily initiated by the West. 2) I find it absurd, they you not only ignore the lessons of history... you outright deny human history as being relevant. 3) I question your 'this time it is different' mantra... The reason we are in a crisis is the very same reason that brought with it the Great Depression... A Credit Crunch. 4) This time however, rather than let the system collapse and cleanse itself of the inefficient financial and corporate muck, the govt is looking to save it, because they have become 'too big to fail' and in the process they are learning just how big their failures that cannot fail really are. Saving these failed entities is creating yet another bubble... the bond bubble, which if not fed by outside sources, is fed by monetization. 5) You speak of fast tracking change... well Human nature is not up to it. The greater the change, the greater the resistance to that change... is how human nature works. Anyone who works in change management knows this. 6) Slowly, slowly, catchy monkey... in case you hadn't heard.

1) You raised a World War & I state again WW3 is entirely out of the question, it would destroy us all! We already have 2 other major wars, one of which is directly related to one of my 7 Global Macro Factors, that being Peak Oil & of course it is the war in Iraq. Both Iraq & Aftghanistan are a huge drain on resources, they are not beneficial.
2) On the contrary, I have learned from studying history that war on a Global scale, has now gone beyond being an Economic stimulus, it is now a species killer - OURS!
3) When in human history, did all 7 of my Global Macro Factors apply, except now? This is a great deal more, than the Great Depression!
4) I agree with you, that should not have been allowed to happen & both major US Political party's did, as well as other governments of various persuasions. I would question their motives, as should the motives of Alan Greenspan, Bernanke & Others also be questioned. I do not believe that the sorts of "wrong decisions" which have been taken, can all be errors of judgement, accidents or co-incidences.
5) I believe we are now out of time and only urgent actions will have any chance of saving future generations from a dire & deteriorating set of circumstances.
That said, I think you will find that I already said that we are unlikely to take the required actions voluntarily and it may not even happen in-voluntarily.
Management has nothing to do with this discussion. Notwithstanding that, I did spend quite some time in the financial sector, including in magaement, prior to retirement a few years ago.
6) Everything is subject to circumstances, on this ocassion slowly, slowly, won't cut it!  

Sappho wrote on Aug 29^th, 2010 at 1:24pm:

Senexx wrote on Aug 28th, 2010 at 9:56pm: What a load of crap this thread is.  Anyone believes that inflation and hyperinflation is soon to follow go breathe in some water. Did you read the link? Do you understand the difference between Inflation that acts on the economy and Hyperinflation that acts on the currency? Quote: For anyone concerned about hyperinflation from debt, deficit, stimulus packages I ask you to turn your attention to Japan where they have had a massive deficit and have been bordering on deflation for years. Crucial point you fail to note is that Japan save and those savings act as collateral. The US does not save in anywhere near the same numbers and therefore have no collateral to justify their excessive debt. The USD is not worth what it is claimed to be worth... and this little truth is reverberating throughout all markets globally.

Whilst it is correct that the USA has started down a similar path to Japan's lost 2 decades, it will not necessarily go down exactly the same path and Japans path may also be in the process of change.

However, it is true that the Japanes were/are big savers and that the Japanese are funding their governments own Deficits & Debt, so far, whereas the USA in far more external in their funding, primarily via China & Japan. That external funding has also started to decline.

It is also true that the US$ & Debt are both not worth what is claimed and the De-valuation &/or De-fault may well cause a very large quake, around the world!

STOP THE PRESS!!!!!!!!!!!!!!!!!!!!!!


Quote:

Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou. Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China. STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012. Chinese state-run media and official government websites have run several high-profile reports about Zhou, which should be seen as an attempt to refute the rumors. The PBC website published two articles on its homepage reporting on Zhou’s meeting with visiting Japanese Financial Services Minister Shozaburo Jimi during the third China-Japan high-level economic dialogue as well as a meeting with an Italian delegation. Xinhua news agency reported that Zhou told the PBC Party Committee Enlargement meeting on Aug. 30 it should “continue to implement justice and strengthen legislative work in the financial system.” Prior to this news, Zhou appeared at the 2nd annual conference of the heads of the Chinese, Japanese and Korean central banks held on Aug. 3, and his most recent public appearance was Aug. 10 for China’s Financial System Anti-corruption Construction Exhibition. Zhou is known to have lofty political ambitions and is believed to be a close ally to former Chinese President Jiang Zemin, as well as a core figure for Jiang’s “Shanghai Gang.” There has been no shortage of rumors about Zhou’s possible dismissal in the past five years, as he is believed to be associated with several high-level financial scandals. For example, Zhou was rumored to be under “shuanggui,” a form of house arrest administered by the CPC, during the massive crackdown of Shanghai Party Secretary Chen Liangyu in 2006, which was perceived in the country as a crackdown of the Shanghai Gang and part of President Hu Jintao’s effort to consolidate power ahead of the 2007 power transition. There was also a rumor that he might have been detained following the investigation and arrest of Wang Yi, the vice governor of the China Development Bank, along with several other officials in the financial circle. Currently, several financial scandals are still under investigation, and it is likely that Zhou, as PBC governor and one of the most powerful economic players in the country, could be associated with some cases. Therefore, whether or not the rumor is true at this time, the leaking of this news is very likely to be associated with a power struggle within the Communist Party’s economic hierarchy. Read more: China: Rumors of the Central Bank Chief's Defection | STRATFOR

STRATFOR is continuing to examine unconfirmed rumors that Zhou Xiaochuan, governor of the People’s Bank of China, fled China to the United States. The origin of the report has been hard to track, especially due to censorship of websites discussing the rumors, so the unconfirmed rumors remain just that — unconfirmed. However, if true, these rumors could have significant implications for China and for Sino-U.S. relations.
Analysis

STRATFOR is continuing to investigate unconfirmed rumors circulating in Chinese media to the effect that Zhou Xiaochuan, governor of the People’s Bank of China, has fled China to the United States. At present there is still no confirmation.

The provenance of the rumor has proved hard to track. A report attributed to Hong Kong’s Ming Pao newspaper on Aug. 28 said that Zhou might be punished for a large loss on U.S Treasury bonds worth $430 billion, and that the Chinese government might also punish others in the People’s Bank of China. The report allegedly originated on an unknown but “major” Chinese discussion forum, and that forum suggested that Zhou had left the country. Ming Pao denied it had published the report Aug. 30, saying others had used Ming Pao’s name without permission to distribute the rumor. STRATFOR has not yet been able to track down the original report, most likely because the Chinese government appears to be actively censoring websites discussing the rumors, deleting some web pages and blocking search engine results that involve Zhou’s name and words relating to a possible defection. Rumors have continued to circulate on Chinese blogs and web forums, in particular suggesting that Zhou may have defected to the United States. The reports are still posted on the blog of a professor, Liu Bingfu, whose career experience suggests he is a notable, if minor, academic.

Zhou cannot be confirmed to have appeared in public since the rumors began. The official website of the People’s Bank of China has reported on Zhou’s activities Aug. 30 — such as attending meetings with officials from Japan and Italy — in what appears to be unusual coverage, including photos, and may be an attempt to counteract the rumors. The pictures were taken from a distance but do appear to show Zhou, though it cannot be confirmed whether the photos were in fact taken on Aug. 30. Zhou’s last televised appearance was on Aug. 26 on CCTV, attending a conference with Chinese Premier Wen Jiabao, and images of the TV appearance also seem to show Zhou. Zhou had attended official events Aug. 10, in which he called for China to continue developing its western regions, and Aug. 3, when he met with his South Korean and Japanese counterparts.

Therefore what STRATFOR has at the moment remains unconfirmed rumors. If the reports are false, it would seem likely that Zhou will make a public appearance soon to dispel them. Otherwise speculation will continue. There are constantly rumors that high-level Chinese officials are in danger of a downfall, especially dealing with economic policymakers amid the economic challenges in recent years — this year alone, such rumors have touched Wen and top banking regulator Liu Mingkang. Similarly, China has undertaken an extensive drive over the past year targeting corrupt officials, and a variant of the rumors about Zhou suggests he has disappeared from the public spotlight because he is under investigation for corruption.

What makes the rumors about Zhou more interesting, beyond his position as governor of the central bank, is the specific claim that he has defected to the United States. If true, this would have serious ramifications for domestic and foreign perceptions of China’s political and financial stability, as well as for U.S.-Chinese relations. Though the rumors may prove false, their emergence alone likely suggests an attempt to detract from Zhou’s reputation. This could be related to his economic policies — while the rumor of a loss of $430 billion related to U.S. Treasury bills is difficult to comprehend without more context, China has recently adjusted its foreign exchange reserve management, or Zhou may have been targeted as part of the factional struggles ahead of leadership transition in 2012. However, it is relatively rare in China for political leaders to be punished for failed policies, and more likely the consequence of scandals, misconduct or political purges.
http://www.stratfor.com/

If the rumours are true, then this is the black swan that will trigger the next round of economic decline for the US.

Personally, I struggle to believe it, but then, that is the nature of The Black Swan Effect... it is the outlying, unexpected event that brings chaos.

Sappho wrote on Aug 31^st, 2010 at 12:22pm:

If the rumours are true, then this is the black swan that will trigger the next round of economic decline for the US. Personally, I struggle to believe it, but then, that is the nature of The Black Swan Effect... it is the outlying, unexpected event that brings chaos.

Well, it could certainly get interesting! The reference is $430 Billion, who is to say that's all there is?

I note that the US is saying he hasn't defected & China are saying he hasn't been punished.

Personally, I would trust either of those statements!