[Jotapay]

I read an interesting thread on TF which got me thinking. Once the current deleveraging is complete, that is when semi-hyper-inflation will most likely occur, a la Peter Schiff. Here are some questions:

1. Do you believe this to be true?
2. When will deleveraging be complete?

If true, this will be the time when you will want to have already bought commodities (food, ammo, medicine, PMs), because their price will skyrocket and cash will be worth much less.

Background info:

Treasuries Fall as U.S. May Announce $60 Billion of Debt Sales
March 4 (Bloomberg) -- Treasuries fell, extending the worst losses in five years, on speculation the U.S. will announce plans tomorrow to sell $60 billion of debt next week as it borrows record amounts to spur the economy.

Bozonian:
This is not going to end well.

Once the deleveraging is done, I can see huge inflation making these bonds untradeable as cash itself begins to lose value and the Peter Schiff scenario takes hold.

The deflation will have destroyed 90% of the productive facilities of the world and the cash will come flooding back in chasing after the remaining goods and services. Instant hyperinflationary kaboom not caused per se by the government.

Hopefully food, medicine and clothing will survive in enough abundance to not be subject to price inflation but watch for which industries are being wiped out (auto for instance). Those will be the expensive items when the pendulum reverses.

Right now investors are running to paper assets while the real assets are being wiped out. To me it's very obvious what's going to happen. Do whatever you can to not let deflation destroy your survival tools because you will be needing them when the HI hits.

We have an economic, oscillating pendulum which swings wider and wilder with every boom bust and it's about to tear itself loose from its hook.

[crude_intentions]

I heard a story that during the 2004 Indonesian Tsunami, just before the waves struck. The shoreline suddenly receded so fast that fish were left flopping around on dry land. This prompted some people to run out and start grabbing the fish. Others who recognized what was happening took off for high ground. By the time the wave struck, it was to late and all the people on the shore drowned. My thoughts are this is going to be similar in nature.
1. The Shore receding is the deleveraging (Deflation), the tsunami is going to be the inflation.
2. By the time you see it happening it will be too late. Only the people on the economic high ground are going to survive this.

[shady28]

I read an interesting thread on TF which got me thinking. Once the current deleveraging is complete, that is when semi-hyper-inflation will most likely occur, a la Peter Schiff. Here are some questions:

1. Do you believe this to be true?
2. When will deleveraging be complete?

If true, this will be the time when you will want to have already bought commodities (food, ammo, medicine, PMs), because their price will skyrocket and cash will be worth much less.

Background info:

Treasuries Fall as U.S. May Announce $60 Billion of Debt Sales
March 4 (Bloomberg) -- Treasuries fell, extending the worst losses in five years, on speculation the U.S. will announce plans tomorrow to sell $60 billion of debt next week as it borrows record amounts to spur the economy.

It's true deleveraging will eventually complete, or hit a bottom. The problem right now is that the 'natural' economic process of deleveraging (read, debt contraction / deflation) is being thwarted by the Federal government. I should specify - they are *trying* to thwart it, unsuccessfully.

The 1.2 trillion or so the US Gov't spent in 2008 pales in comparison to the 10+ trillion lost in 2008 alone ( 3.3 trillion in home equity, 6.9 in the stock market). This doesn't even take into account multiple incidents like Madoff (50 billion), bondholders of defunct or soon to be defunct companies, etc. My guess is that the real amount lost by Dec 31 2008 was more like 12 trillion. Now in March, the numbers may be hitting close to 15 trillion in lost in equity of various sorts. Another 800 billion has little chance of reversing that kind of meltdown.

The mechanism that has been and is being used to create the bailout money is once again debt. Rather than letting the debt out there simply go bad and having the system reset itself, we are trying to fight a deflationary debt bubble collapse by creating more debt.


In short, this is only extending the amount of time it takes for this cycle to work itself out. We are likely to have some quarter or two of positive growth where people think things are ok, only for things to slide yet again.

The fiat currency argument for hyperinflation has a lot of basis in fact, but you've also got to keep in mind the time horizon. I would term most of the stable or high flying commodities (there are only a few, gold and oil right now) as bubbles themselves. People have it in their mind that gold is safe, and oil will go up. This is because they are thinking about the last major recession(s) - 1974 and 1981. This is not the last major recession, this is something different from that but not at all new either. These bubbles in oil and gold will collapse imo, and I don't think that is too far off. My thought is that oil will collapse this summer, and gold shortly afterwards.

At some point, the Fed may indeed start printing money without debt backing due to popular opinion and political pressure, use it to make mass purchases or refunds of some kind to tall taxpayers, and cause inflation to kick off. Things will have to get a lot worse before then. The general public opinion will have to reverse from 'you're spending too much money' to 'do something, things are too bad' - along with some serious arm twisting at the Fed. I think anything like that is at least a year away, and probably several years out.

[ReverseEngineer]

[quote="shady28"][quote="Jotapay"]I read an interesting thread on TF which got me thinking. Once the current deleveraging is complete, that is when semi-hyper-inflation will most likely occur, a la Peter Schiff. Here are some questions:

1. Do you believe this to be true?
2. When will deleveraging be complete?

You cannot deleverage out of a Black Hole. To actually reconcile out CDS and CDOs would take on the order of a quadrillion dollars. Long before its possible to print or even create enough digital zeros the industrial economy will have ground to a halt.

This does not necessarily mean all commodities will be unavailable however. A substitute command economy could be undertaken within days. Read that something like Hugo Chavez taking over the rice production facilities in Venezuela, just on a larger scale.

The likelihood of Weimar style hyper inflation is IMHO small, although not necessarily vanishingly small. There are other outcomes more likely, none of them good either of course.

Reverse Engineer

[bodigami]

(...)

You cannot deleverage out of a Black Hole. To actually reconcile out CDS and CDOs would take on the order of a quadrillion dollars. Long before its possible to print or even create enough digital zeros the industrial economy will have ground to a halt.

This does not necessarily mean all commodities will be unavailable however. A substitute command economy could be undertaken within days. Read that something like Hugo Chavez taking over the rice production facilities in Venezuela, just on a larger scale.

The likelihood of Weimar style hyper inflation is IMHO small, although not necessarily vanishingly small. There are other outcomes more likely, none of them good either of course.

Reverse Engineer

What about a combination of a command economy for "basics" (food, water) and a Weimar style hyper inflation of everything else?

[Snowrunner]

Pure guessing on my part. There is a lot of messing around going on that will influx things.

From looking at things I think the bottom will be the 4000 mark on the Dow, but the Dow has lost it's value as an indicator the moment the day traders started flooding in.

Realistically: The REAL deleverging hasn't even started yet, the EU banks are still "on the fence", Canada is only in the beginning of the woes (the almost 20% drop in RE value not withstanding) and Asia etc. are still on the verge.

I think it will take a few years to really get to the bottom of this. How long? Who knows, something catastrophic may lead to a short cut.

But my gut feeling is we're in for 25 years of a very wild ride and it may just break our necks in the process.

[jupiters_release]

You cannot deleverage out of a Black Hole. To actually reconcile out CDS and CDOs would take on the order of a quadrillion dollars.

Regurgitating newspeak doesn't make it true. The 'Black Hole' (this term should be nominated for best of in media deception) is nothing but a fraudulent market of contracts. Even Denninger has said all along they should be nullified. Of course nothing of the sort will happen because destroying the economy and consolidating wealth are exactly what it was supposed to do.

Most people have no idea how language controls their understanding of reality. English specifically is really good at covering up the truth.

[nobodypanic]

deleveraging complete.

[yeahbut]

deleveraging complete.

(wipes coffee off monitor)

[ReverseEngineer]

You cannot deleverage out of a Black Hole. To actually reconcile out CDS and CDOs would take on the order of a quadrillion dollars.

Regurgitating newspeak doesn't make it true. The 'Black Hole' (this term should be nominated for best of in media deception) is nothing but a fraudulent market of contracts. Even Denninger has said all along they should be nullified. Of course nothing of the sort will happen because destroying the economy and consolidating wealth are exactly what it was supposed to do.

Most people have no idea how language controls their understanding of reality. English specifically is really good at covering up the truth.

Theoretically you could nullify all contracts, but that is the same thing as saying you will collapse the monetary system. Its based on contracts. The fact is that the reason AIG keeps showing up with multi billion dollar deficits every few months is BECAUSE they are honoring the CDS and CDO contracts they hold. If they didn't, the banks over in Europe would ALREADY be bankrupt, the money they are collecting on these contracts is the only ting keeping them floating.

So anyhow, Denninger is fundamentally wrong in the sense you can't simply cancel all the contracts without bringing tdown the system itself, which I gather he thinks can be preserved by this methodology. It IS a Black Hole, because there is no way to fill it short of imploding the system as a whole.

Reverse Engineer

[jupiters_release]

Theoretically you could nullify all contracts, but that is the same thing as saying you will collapse the monetary system. Its based on contracts. The fact is that the reason AIG keeps showing up with multi billion dollar deficits every few months is BECAUSE they are honoring the CDS and CDO contracts they hold. If they didn't, the banks over in Europe would ALREADY be bankrupt, the money they are collecting on these contracts is the only ting keeping them floating.

Are you trying to imply derivative contracts are the only type of contracts that exist in the world? There's absolutely no disclosure or transparency on who's getting the bulk of the derivative money. Not sure how you can conclude the bankrupt banks too big to fail in Europe are the beneficiaries, just as likely they're on the losing end of the contracts along with AIG.

It IS a Black Hole, because there is no way to fill it short of imploding the system as a whole.

Reverse Engineer

We heard this every day from Paulson and Bernanke, your swaggering gullibility is impressive though.

[SeaGypsy]

deleveraging complete.

(wipes coffee off monitor)

Says it all don't it?