Sunday, September 5, 2010

A Bigger War Coming

One of the great, albeit, lopsided debates that has taken place the last few years amongst those keenly interested in finance and economics has been over whether the forces of deflation or inflation would ultimately dominate. So far, the deflationists have held the upper hand. Employment has been moribund for years, ditto the share markets, and in most areas of the country, housing prices have cratered. And since the vast majority of people's (seemingly) ever diminishing wealth still resides in their homes, it is very hard to make the case, despite evidence of rising costs for consumer goods, food, and fuel, that the effects of inflation have been, to date, as deeply felt as those of deflation.

At this point it might be helpful to point out that hyper-inflation, a dreadful condition that has most recently ravaged Zimbabwe, and that most notably occurred in the last century in such varied locales as Weimar Germany, Argentina, and Chile, is, despite the seeming similarity to inflation, a very different animal. Hyper-inflation occurs when a nation's currency is, in effect, shunned, which tends to be the result of a total and relatively sudden loss of confidence in the issuer of said currency. Inflation, by contrast, is generally a healthy development that comes about as a result of a fully functioning economy simply overheating.

There is nothing healthy about hyper-inflation. In fact, it is so nasty that, after wreaking absolute havoc, economically, politically, and socially, it generally burns itself out in a year or so. There is no evidence in modernity of hyper-inflation occurring in a currency that has held global reserve status, and that is the primary reason commentators invoke against the possibility of hyper-inflation occurring in the U.S.

The other reason that many "experts" offer for why
it can't happen here, a reason that is, in essence, inextricable from the idea that the U.S. Dollar's reserve currency status will forestall hyper-inflation, resides in a belief in the indomitability of the U.S. monetary authorities. The basic idea is as follows: The Federal Reserve, The Treasury, and the broker dealers that work closely with these two institutions will not collude to monetize to a degree that will ignite hyper-inflation, because it is not in their interest to bail out borrowers at the expense of lenders. Despite sitting on trillions of dollars of non performing, (i.e. worthless) assets that can not be allowed to sit on balance sheets forever in their vastly depressed state, to head down the road of hyper-inflation would destroy The Federal Reserve's most prized asset, its dollar franchise. The goose that laid the golden eggs would be well and truly killed.

These arguments have several flaws, one of which is that the U.S. dollar is already in the process of losing its reserve currency status. It is happening slowly, and in fits and starts, but the wheel is rolling down the hill nonetheless. The rest of the world has been badly burned by the profound corruption in our capital markets and political sphere, and they are taking steps to insure that they will not be the bag holders of tomorrow.

As for the vaunted power of the U.S. monetary authorities, only in the sort of system we don't live in, namely a closed one, can their formidable power be, in theory, unassailable. The Federal Reserve and The Treasury do indeed have massive, if not unimpeachable, strength, but it is my view they have already squandered a great deal of their wherewithal in the service of a plethora of scams and frauds-see gold and silver suppression, and, of course, the much better known, but hardly transparent, exchange of toxic assets for currency. So, in short, the U.S. dollar is a currency whose days as the globe's reserve monetary unit are numbered, and the U.S. monetary authorities have, despite surface appearances, squandered their advantage and compromised their authority through various execrable endeavors.

Having said that, nobody wants a hyper-inflation, which may, in the end, be the main reason why one won't come about. However, my view is that the aforesaid wayward deeds of the U.S. monetary authorities are all that stands between us and the onset of wheelbarrow money. When, for whatever reason, their machinations are finally sundered-they are already exposed, but to date, no one in our thoroughly corrupt political environment seems remotely interested in addressing them-we will likely be hours away from a full blown hyper-inflation as they have an unerring and alarming tendency to emerge with blinding speed.

At this point you may be wondering what the title to today's blog entry has to do with what I've written about so far. Here's a hint: The authorities, monetary and otherwise, are, in my view, very aware that our financial system and economy are in a terminal state, and that the risk of an uncontrolled currency collapse-as opposed to their far more preferred scenario of a contained, slow moving one- is far from inconsiderable. What do you suppose they might have in mind to forestall, or at the very least, divert attention away from, the inevitable day of reckoning?


Anonymous said...
This comment has been removed by a blog administrator.
Debra said...

One of the things that really hampers AMERICAN understanding of these questions is the far reaching effect of the United States' military, and political world domination in American minds.
It appears to me that the majority of Americans I deal with really are moving within that big bubble that privileged status seems to create inevitably.
Like... my country/I is/am the center of the world. Said in another form... all roads lead to... you fill in. The quote is VERY OLD, but as appropriate today as it was then.
The truly intelligent people I deal with are aware of the bubble.. AT LEAST SUPERFICIALLY.
But, FROM WHERE THEY'RE SITTING, they truly CANNOT SEE the world the way that people outside of the U.S. see it. It is.. geographically impossible, maybe.
I've already written on SuddenDebt that before Obama was elected even, I sat in my democrat senator's office, talking to one of his aides, and SAID... that I hoped that Barack would be elected, because I thought he stood a better chance of finessing.. U.S. decline in the world, decline that was already WELL UNDER WAY in my eyes.
Consider this... after WW2, the French were out there in the streets KISSING the G.I.'s for their liberation.
The U.S. was perceived truly as a civilized LIBERATOR after WW2 (well, most of the French DO NOT KNOW that the American army was all revved up to set up a protectorate in France after the war, and only De Gaulle's fast moves, and persistance kept them from doing it..).
We're talking about how the U.S. (government) is perceived in the world.
The.. uh.. HOPES, the DREAMS that that government can ignite in the hearts and minds of people who are longing for liberty, and democracy.
IF the U.S. is losing that shiny prestige it is PRIMARILY because the country is increasingly perceived as having BETRAYED those dreams, and aspirations.
The currency question... that is really SECONDARY, my friend.
The currency IS WORTH... IN DIRECT RELATION to the reputation, POLITICAL (and economic...) of the country.
And the reputation ??
Not doing so good these days, now, is it ??
The U.S. government is increasingly perceived as the world's biggest bully.
And.. as an OBSTRUCTION to the aspiration towards liberty.
WHEN we go down as a superpower, Edwardo, it will be because WE no longer believe in those ideals, and, no longer believing in them, we won't be able to help anybody else believe in them either. Indeed, we are going down ALREADY because we don't believe anymore.

Debra said...

Remember.. it's not for nothing that they call it.. FIAT.

Edwardo said...

The whole issue of decline is quite involved, and one would require far more time, and possibly a grant from something like The Ford Foundation, to adequately cover it. I will say this, the U.S. came by it's hegemony as the result of the massive vacuum engendered by WW II, where the U..S was, literally, the last man left standing., We have subsequently managed to squander our position of advantage in record time.

Debra said...

Mind your p's and q's, Edwardo... ;-)
its not it's...
Did you ever see that book about apostrophes ?
Called : "Eats, Shoots, and Leaves"...
Excellent book. Very witty too.

Edwardo said...

You're right. It's incorrect. And yes, I've seen the book you've mentioned.

Anonymous said...

I think what they have in mind is to keep things propped up as much as possible while they perfect the feudal indenture/crop lien regime (using the term "crop lien" as exemplary of general debt slavery) and the police state to provide muscle for it. (Although you scoffed at that earlier.)

Keeping the currency propped up is a major challenge as you say, and although I expect them to basically (if not consciously) capitulate to deflation, I suppose they could find themselves in a hyperinflationary spiral as well.

(I see deflation and hyperinflation as two forms of loss of control, vs. the managed inflation which is their sought control.

I think implicit surrender is more likely than losing control on the more active money-printing side because (1) the former is driven by the forces of physical (Peak Oil) and economic reality, and (2) it's the path of least resistance and less visible politically. Significant inflation is like overt taxation - politically high-profile. That's part of why inflation-phobia is so ingrained at the Fed.)

I replied to your comment at Volatility, but I think you posted it under the wrong thread. I can move it if you want.

Edwardo said...

With respect to your assertion that I scoffed at the implementation of a police state, I don't know when (or precisely what) I scoffed at that notion, but if the aforesaid police state required a lot of homegrown middle and lower class personnel in order to function, I would, indeed, have some doubts about its ability to exist. My doubts are almost informed by an excess of faith in my fellow citizens, but there it is.

Hyper-inflation is the other side of the coin to deflation. In fact, hyper-inflations tend to gestate from within deflationary environments, but, because of their peculiar nature, they are infinitely more chaotic than deflationary environments. Crime statistics on the two'flations bear that out.

Yes, please move my comment over if it's no trouble.

Debra said...

Sometimes, Edwardo, when I see the content and tone of some comments on the blogs, I have no doubts that recruiting for the police state would be easier than you think..
After all, there are many people currently out there who continously jump at the idea of participating in an execution... pushing the needle in and all that.
Some of THEM would probably even get excited about the idea of frying people with the electric chair...
I think that the word "they" is getting overexercised in English these days.
I VOTE FOR... "WE"... IT is NOT getting overexercised AT ALL...

Edwardo said...

Probably true, Deb, about there being plenty of candidates about the land who would be only too happy to be employed in a position that would encourage, even reward, brutality and cruelty. After all, as some sage from antiquity observed, "Man is a wolf to man.

Anonymous said...

Edwardo, I was referring to your comment here.

"As I read this, I almost have to laugh, because, frankly, in my view, this lurid scenario seems untenable."

On the contrary, the evidence of the two months since writing that have only convinced me further that that's the goal.

I agree that we have to be optimistic about the people rising up against this (if I believed there was no chance I'd be doing something different from what I'm doing now).

It's odd, though, that while you have no "faith" in the feudalists' ability to use existing trends bolstered by brute force to achieve refeudalization over the longer term, you have far more faith than I do in their ability to perform vast yet intricate financial operations over the short to mid term.

I expect "collapse" into something far worse than the First Great Depression over the mid term, during which the neo-feudal attempt will be made.

(And I've devoted my life to finding a way to thwart that attempt.)

I moved your comment and my reply.

Debra said...

I think that y'otta read up a little bit on feudalism there, attempter... it MAY not have been exactly what you THINK it was. By the way, I am WAY TOO IGNORANT on this subject for MY tastes. I am just beginning to open up this chapter to reconsider it. Like lots of other people, I imagine...
Lots of great historical research going on in our time about feudalism.
Of course... lots of the bad press that feudalism got was the inevitable result of the FOLLOWING ideology's need to totally discredit it in order to open up their store for buyers...
So it has ever been. So it ever will be.
In my opinion.

Debra said...

And Edwardo... I am NOT an addictive personality. Not really...
When I give up something for Lent, I can let it lie.
Already have.
I think it's ALSO too bad all those stories we keep repeating to ourselves to convince ourselves that we are nothing but wolves...
Tired ideology, Edwardo. Old and tired.
Let's make way for the new...

Edwardo said...

Would that it were an ideology. Ideologies are born from something other than experience.

Debra said...

Well then... it's too bad that your experience has been so disastrous.
As for me... I am.. VERY MUCH LOVED, Edwardo.
People bend themselves into four parts for me, without my having to lift a finger.
It can be.. EERIE sometimes.
My daughter has the same gift.
But then... I LOVE people too.
And they "pay me back " for it a hundredfold.
With no filthy lucre...

Edwardo said...

Good for you, Deb. I wasn't talking about myself or my experience, but rather that of the person who made the observation.

Debra said...

I woke up this morning with a queasy feeling in my stomach, like... what if something happened to HELL ?
Has he ever gone awol for such a long period before ?
I don't remember...Do you ?

Edwardo said...

I don't know. I imagine he's fine, just engaged with other things.