The deflation / inflation debate is one that will not die until each phase has played out. In The Path to Hyperinflation Jordan Roy-Byrne breaks down the three stages we’ll experience:
In the first stage, the economy enters a recession after a large credit bubble. The recession and end of the credit bubble lead to deflation. As a result, the US Dollar and US Treasuries outperform. Think 2008.
Policy makers (a term for interventionist bureaucrats) then provide stimulus via monetary easing and deficit spending. Gold (NYSE: GLD) and gold stocks (NYSE: GDX) outperform with silver not far behind. Think late 2008 to early 2009.
The economy gets a bump from the stimulus and economically sensitive markets such as commodities and stocks outperform. Think 2009.
This brings us to where we are now. The market is starting to sense that Europe’s debt burden is too high as its economies struggle to recover under the weight of excessive debt. The market is beginning to sense a rising probability of default. Precious metals are soaring against the Euro, the Pound and the Swiss Franc.
Meanwhile, with money moving back into US Treasuries, the US will have the ability to attempt another stimulus and announce further quantitative easing. Europe is currently ahead of the US on its track to currency depreciation, rising inflation expectations, and rising CPI/PPI. The US still has time before the market begins to worry about its debt burden.
The next stage is the transition from the initial outbreak of price inflation to severe inflation. Inflation accelerates due to a loss of confidence in governments and currencies. A failed economic recovery leads the market to realize that the debt burden is too large and will ultimately be defaulted upon or inflated away. At this juncture, all commodities begin to perform well again. It may take anywhere from six to 18 months for this stage to be evident.
Finally, inflation is exacerbated as supply shortages emerge. Tight credit restricts new production and consumers begin to hoard. During such a period, precious metals and commodities will continue to perform well but the agriculture sector will be the real leader.
Most market observers, at least those of us who don’t wear the rose glasses of recovery, understand that the twelve months of rising stock prices that followed the March 2009 lows are a result of not economic recovery or improving market fundamentals, but government intervention in the form of bailouts and stimulus. As the largest credit bubble in history exploded in 2008, prices in everything from real estate to agriculture collapsed – significantly. As a result, the governments of the world pumped trillions of dollars worth of paper money at the problem. Had they not done so, it is likely that prices around the globe would have continued to drop.
Thus, what we experienced in 2008 was a severe bout of deflationary forces across not just stock markets, but just about every asset class in the world. It can be argued that we are actually still in a period of deflation and if / when the US government relieves stimulus intervention policies, you can expect a repeat of 2008. Deflationary forces have not yet gone away, as there is still too much bad debt in the system that needs to be cleared out, and the few trillion pumped in from government here and there may not be enough to keep prices at current levels. So goes the argument for deflation, basically.
However, as Mr. Roy-Byrne suggests, there is a lot of money currently flowing into US Treasuries, which means that global investors seeking safety from the debt problems of Europe are shifting their money out of Euro denominated assets and buying US Dollars denominated debt. For the time being, this should work to protect wealth, especially as problems throughout Europe continue to accelerate. No, it’s not just a problem with Greece – it’s Europe-wide and it will play out in coming months as it becomes evident that Spain, Italy and Portugal are ever worse off than Greece because they contribute much more to the European economy than the Greeks do.
To get an idea of what may happen to the US dollar in the future, just give the Euro a look. In the last 3 months, it has been absolutely pounded as investors rushed to safety. The loss of Euro purchasing power is evident in the significant price increases of precious metals in the European Monetary Union’s currency.
Now, take a look at the United States. If you think Greece or Spain or Italy are serious, consider the debt problems we have with our own states. In 2007 and 2008 the problems we experienced resulted from high debt loads and mismanagement with private companies. The next stage will be much worse, as we are going to be talking about government defaults.
As Mr. Roy-Byrne points out, “the US still has time before the market begins to worry about its debt burden.” Our time will be up when US states start announcing their insolvency and inability to meet the most basic obligations to which they have agreed, like paying state employees, making pension payments and covering the cost of health care. The federal government, in order to prevent panic, will have to move to stabilize the crisis, and they will do this not by bailing out Wall Street, but the states themselves. If you thought that the recent round of bailouts were bad for the dollar, wait until the majority of the states in the union come asking for emergency funds. The US government will have to print so much money that AIG, Freddie and Fannie will be considered child’s play.
This is when the rest of the world will realize that the US dollar is no longer a bastion of safety. This is when global investors will begin to scramble to off load their US debt based holdings like Treasury bonds. And this is when, if hyperinflation is in the cards, that the US economy will see the worst of the destruction in this crisis.
There is still a bit of time before we hit this level, but just as the real estate bubble was bound to pop, so too will the US government.
a bit of time?
Define “bit” please!!
Jordan Roy-Byrne steals “his” description directly from Marc Faber, nearly verbatim.
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According to Marc Faber the timeline for these events will take 5 to 10 years to play out. I think Dr Doom is a little optimistic.
(Search,,,,marc faber lateline business interview august 26, 2009 on youtube,,,)
Eric Sprott of Sprott Asset Management suggest now, more than ever, investors should move their wealth into precious metals. Sovereign debt issues will eventually reach the U.S.
(Search,,,eric sprott markets at a glance,,,)
I agree with the article, there is a bigger crisis coming and now is the time to prepare.
utube mish shedlock…
Stocks went up because the interest rates were practically at zero. Why leave your money in the bank? You’ll see when interest rates go up, stocks will start creeping down again because people will put some of their money that were in stocks back in a more safe investment, the bank. The stimulus, in my opinion, just gave people confidence.
“This is when the rest of the world will realize that the US dollar is no longer a bastion of safety. This is when global investors will begin to scramble to off load their US debt based holdings like Treasury bonds.”
And where will they put their money?
I am not so sure anymore about the imminant collapse of the dollar / financial system under its own weight, as long as China continues to play the game. Right now its three card monte with the US, China, and Europe in the paper chase. Shuffle might be a better term. Note China’s recent support for the Euro, too.
China sucks up US and Euro paper assests like a hoover and converts them into major commodity stakes globally by either buying the companies that control these resources, buying the resources directly, or by signing long term contracts for the resource. This has been going on for a long time and the amount of global resources that China controls in this way now is mind boggling. At the same time they have almost become self sufficient in producing their own food. The only real exception to this program has been in the natural resources of Russia which are not for sale.
Something really BIG has to happen to change the rules of the game and the status quo. Demand and supply market changes, in any and all markets, don’t seem to be enough. Whether it is the Big One under LA,
CME’s, or the pole shift, the trigger has to be a game changer. Not sure whether the coming Israeli / Iranian War is enough either.
As long as China continues to play the game, China wins.
Let’s get this straight zukadu…yer the one who was predicting the ‘big’ earthquake — 7.4 SOCal if I remember right, and we should actually give a big sh*t about what you think? The holy dollar is worth a whopping penny compared to the 1930 dollar, and it has NO purchasing power…it doesn’t matter what China, or anyone else does…the world is in the crapper and the lever has been pulled. The oil spew (not spill) as it is still continuing to spew thousands of gallons on black death from the BP (bottomless pit) each and every day is the final nail in the coffin of Amerika. Thank God there will only be one worthless term of the Barkey — how’s that hope and change working out for you? Maybe those of us that are left (got yer beans bullets and band aids?) will be able to help heal the planet, or maybe better the good Lord will return and fulfill his prophecy.
Please consider my rants, and explain why you think gold and silver will raise during times when no one, including countries, can afford to buy it. The demand is about to be puled from the equation.
How will there be hyperinflation when the consumer/wage earner/entitlement “Joe Six-Pack” has no savings, high debt and just enough pocket change to go week to week?Â
The key to getting out of this mess is full employment. That is the only way out. American needs to create high demand manufacturing out of thin air… and either you have to reduce the American population by 25% or reduce the wages to become competitive. Only by full employment using real money (not people buying product on credit) to buy stuff will the machine be saved.
We are betting this will not occur as America is too far up the NWO’s butt.
We are betting on hyper deflation and that unemployment will go up until American labor unions and Federal Law reduce the minimum wage to 1.00 per hour to once become competitive with the New World Order.Â
We are betting cash is king. Recall your parents telling you they bought their house brand new for $6,500 … it may happen again!!
The number of stores (big and small businesses) will be reduced as they can’t make a profit off consumers that have no cash or credit. More factories will close as fewer stores in existence order fewer inventory. Trucking firms close as orders fall. More stores close, more factories close, more unemployment. 40% unemployed, 50%?
What will end this deflation? How about when farmers stop working because they can’t sell their produce for a profit because the price is so low. How about when there are only a handfull of electronic factories around the world only producing a few thousand items per year?
Gold/oz and the NYSE may be $300 at this point.
When products become scarce, only then inflation reverse this hyper deflation. Then THE SHTF!! You will have billions of unemployed people worldwide with no money, no credit fighting for the two loafs of bread on the black market.
The sooner one can live like they are in the 1870’s, totally self reliant, the better they will fare in the end. I pity the city slickers.
Dr. Doom now says five to ten years.
Just enough time for his prediction to come true, and if not, for YOU to forget.
You can find lots of different time lines for the coming colapse of the economy; I personally think that the five – ten year ‘guesstimate’ is overly generous given the amount of currency that has been printed out of thin air by the FED. People are starting to realize that a 1$ bill and a 100$ bill are worth exactly the same; 0.02$, the cost of the paper, ink and press time.
The really nice thing about recent events as far as I’m concerned is that I an no longer the crazy old fool running around wearing a tin-foil hat and screaming “the sky is falling” in the eyes of my family. The other day my daughter asked me if I thought that we had enough ammunition on hand!!!
Just wait until everyone’s unemployment benefits run out and the states are no longer able to pay pension benefits, AFDC, Section 8 Housing Benefits and wages and medical benefits for citizens. Then let Barkie Obungle and his homies try to tell us that we are on “the road to recovery” and that they can see
“green shoots”!!!!!
If you were here MM I would give you the High Five of the Day!
everyone state there prediction: month,year,and how. winner gets a U.S. dollar
In my opinion no one knows when a collapse will happen, but we all know its coming. The problem is the 95% who don’t have a clue its coming due to the world propaganda machines.
Bi-Flation is already here. Food prices are on the rise and at our current rate it will impact the average family by 30%. 40 million Americans are already on food stamps, just think about that number!!
While food prices are on the rise the value of our real property has fallen another 10%. We will see the home values drop 11 to 23% more now that the inducement is gone.Â
As I’ve said in the past I don’t think we will have a triggering event. The system is just going to collapse under its own weight. It really doesn’t matter if it starts in the EU or California, once it starts the domino principal will kick in and it will follow the sun around the world.
I think the monetary collapse will lead to the big resources power grab and WWIII. All the usual players will be in the fight, the US, China, EU and Russia. The ones no one is counting on is the Muslim Nation coming to power. Lets face it they are out birthing every country and race.
Both Nations and States are economically fragile at this point. Its only going to take one good size state or nation to default and set off the chain reaction. My guess: Spain, Ca. or NY, but who am I, it just my veiw from under my tin foil hat and rose colored glasses.Â
GEORGE – watch the movie “MELTUP” on youtube, it will answer some of  your questions better than i can typing. i do agree w/ you somewhat . deflation is more powerful than inflation. gold / silver = a currency for thousands of years, cultural-relifious ties: india& arab states. china big consumer,hedge against uncertainty,limited supply etc….dont forget taxation is inflationary
The United States will be in full collapse by December 2012. A culmination of economic, social, moral, political, and world disasters/crisis will reach their peak
*Remember this post*
Comments…..
Debt! All this unbacked fiat money was borrowed from the Fed and other central banks around the world and was, as many say, created out of thin air.
If that is correct, the debt is a con game on the people.
Obama was ‘installed’ by the elites to oversee the total destruction of the United States.  You can say he was ‘voted in’ but with the election mass media blitz on the gullible elements of U.S. citizenry, he was ‘installed’.  Â
Obama  has one mission: To make the United States a third world country.        And he is succeeding by fascism, the Fed, and the U.S. Congress.  Â
SWGAS:  Actually I was predicting the BIG ONE to be 9.25 not 7.4. If you are going to quote my bad prediction, at least get the estimate right.
If you think the oil spew in the Gulf is bad news, mutiply it by hundreds, thousands, and then ten of thousands of broken oil wells when the BIG ONE hits, then the pole shift occurs. Its going to be ugly for sure.
In the meantime, Europe and the US will monetize their debt and China appears willing to accept that scenario by accepting their paper dollars, in a game of three card monte. That is a scenario that continues to allow Chinese firms to acquire and dominate all of the strategic resources worldwide.
Monetization will inflate the cost of goods and services, particularly energy, and that will trickle down to higher prices for everything for all of US. If you don’t own a gold mine or oil well, life will be difficult. Thats why most of us on this site care. We see whats coming and want to prepare for it.
Saudi Arabia has the capacity to produce 12 million barrels a day and is currently producing about 9 million BOD. As long as the recovery is slow and drawn out, energy costs will remain moderate, inflation will remain moderate, and world economies have an opportunity to adjust.
As debt is monetized the dollar and euro will lose their purchasing power and effectively the Chinese “R” will appreciate. Eventually monetization makes the US and Europe competitive again for more manufacturing. By that time, at the pace they are preceding, China will be close to fully developed.
So if the creek don’t rise and if the SDHTF I think that is the plan for the PTB. That scenario does take a number of years to play out, which is why I believe a really BIG event is necessary to force SHTF anytime soon.
The I/I War in this fall may not be enough to change the game for more than a year or two.  I believe a massive natural or man made disaster in a major population  / money center is the kind of event that triggers SHTF.
The good news is that we have more time to prep.
Comments…..
The random thinking of this is interesting. From what I think is happening, the Fed is “bailing out” or buying up the corporate debt that they once manufactured from thin air. This bail out is manufactured from thin air. Is that Right? Have I finally got it right?
Then the Fed says that the tax payers owe the Fed something real like work and resources to “pay” back the bailout and debt. Is that right? Can someone enlighten me???? This seems like such a ponzi scheme that I find it hard to believe it could be true. There are some pockets being stuffed from this scheme and they are laughing all the way to…or should I say “away†from the bank.
Mac et al…
Just read a letter posted on the web site of Sen. Warner, VA (yeah, I know…very suspect) at Congress.org, reportedly via a report out of Russia. Says that 14 governors have been threatened by our “glorious leader” with being charged with treason if they continue with plans to activate their state militias independent of the National Guard. Has anyone seen or heard about this? I’d really like to check it out more, but came up empty when I tried to find other news sources for confirmation.
it pays to persist! Found the same “Russian” report on several other sites after searching under Rick Perry, texas state militias. The information also says that Obama ‘nationalized’ the national guards in several states – calling them into national service. Could account for the high number of National Guard troop movements noted in previous posts. At any rate, don’t know about the authenticity of the report that supposedly comes from Russia, but more than one internet site has printed it.
I would also like to say that if the info is true, this is getting scary! The confrontations could come soon!
granny…here are some articles talking about this….ridiculous rumors? Seems like it this time….but I put nothing past this jack ass in chief, he is a 98 lb bully, all mouth and nothing to back it up with. All he has left is intimidation so this could become some kind of future self fulfilling prophecy if things get worse.
http://www.freerepublic.com/focus/f-chat/2522741/posts
http://beforeitsnews.com/story/49/821/Obama_Threatens_14_US_Governors_With_Immediate_Arrest.html
http://www.eutimes.net/2010/05/obama-threatens-14-us-governors-with-immediate-arrest/
Those predicting collapse might be entirely too optimistic. A fiat currency enables the political elite to distribute the nation’s wealth as it sees fit, especially when coupled with a progressive income tax. The fedgov could simply keep inflating and taxing until America has a small elite and a mass of serfs living in mud huts.
Thanks WW – appreciate the links. Felt sure that this would have made the news here in TX if true. Definitely need time to get more ammo1!! 😉