December 20, 2008
Hyperinflation and dollar destruction - it hath been foretold
I would like to meet one of the fools lending money to the US for 30 years at 2.5%
I would like to meet one of the fools selling everything in order to accumulate US dollars.
I'm not sure what was a more stupid mania - the housing bubble, or this brief rush to US dollars and debt.
Bernanke told you what he was going to do, and now he's doing it. Inflation, then deflation, then hyperinflation.
It hath been foretold.
May you live in interesting times.
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Oh-oh, dollar went-up yesterday, gold went down and oil too.
Just look at the volume of paper trades @ comex and you'll see the picture.
So, when are you-all going to buy calls on oil?
Is the big-O going to o-bomb-a someone soon to perk-up oil futures?
I think there are a few thousand fools around - I was thinking of Madoff's former clients who are probably fleeing to the "safety" of USDollars. . .me, I am back in Zurich for the holidays accumulating any currency other than dollars. . .Nigerian Currency? Sure, no problem, Mexican Pesos? for sure. . .Swiss Francs - YES!. . .I actually may buy a house in San Diego when I get back (AHHHH!) just because it might be a good place to park money when the dollar is worth .01 against the Euro. . .maybe this is Bernake's plan - make the dollar so worthless, that even a house would be a better bet.
You know what's funny about gold?
It's paying the same interest rate as 1-month US t-bills right now.
Wow.
And with oil, it depends on your time horizon. Does ANYONE doubt that oil will (priced in US dollars) be more expensive five years from now? It's going to be a LOT more expensive folks. A LOT more.
I mean, unless we're going to a new stone age and the world is ending...
I'm not long or short oil today, because it could go down even more, but I am picking up depressed oil majors and oil services as a wave of consolidation will now hit.
At one point, there will be a whoosh. There's no need to panic and do all of your getting out of the dollar overnight. But do your research now, and start making your moves.
I can't believe what's about to happen. It's surreal.
And when it happens, the MSM and sheeple will again say - 'but nobody saw it coming'
Hyperinflation will come in good time, but deflation is only just getting started. Bernake would have to literally drop money from Helicopters to stop deflation now.
What is so hard to understand about the business cycle? It consists of only two things: inflation and recession. What is all this nonsense about hyperinflation? We are in a really bad recession.
Agree with Anon - first deflation, then hyper-inflation. . .the question is how long is the window of opportunity is open.
Hyperinflation is not going to happen as long as the dollar floats on the open market and globalization continues unabated.
Mugabe's Zimbabwe we are not...
The only way you can have REAL hyperinflation would be for wages to skyrocket as well. Otherwise the whole thing collapses before it gets started and your right back to deflation.
The dollar and American labor still are parts of the free market system. And that labor and dollar aren't supporting a rise in asset/commodities prices anytime soon.
The Fed creates money but unlike Bernanke's speech they ARE NOT dropping it from helicopters and they won't, ever. That's why they won't bail out individual home debtors. That's the real moral hazard, having the masses assume financial assistance and everyone defaulting to join the party.
Oil at $35? The market has spoken. No one sees gobs of cash in the CONSUMER's hands anytime soon.
Now THAT was a good rant!
And he made a really good point about falling prices, that they don't stop people from buying things that they want. Especially if the prices are falling only slowly.
Falling investment asset prices would definitely make people stop buying those but not consumables. I'm not going to stop buying soap and TP and food.
inflation? sure but not yet, give it another year or two. Have you noticed all the pressure on lowering wages? forced unpaid holidays and etc? deflation will stay around for a little while.
Hyperinflation? doubtful. hyperinflation is what is going on in Zimbabwe. we will have inflation but not hyper.
Why is the dollar going up? it is because the market knows that if things are bad for the US dollar then no other currency will be a safe haven.
Keith:
How much time do you give until inflation goes into high gear?
Once again, Keith, you can't have inflation in a Great Depression. I don't know how many times we have to tell you this, but I'll continue doing it until you give up on the Myth of Growth. I think this nearly-religious idea of yours springs from your desire to make money; but that opportunity is over.
Hyperinflation within 5 years is only going to produce an LA-riots scene in every major city across the nation. People just can't pay, and then products and services won't be sold, and all those providers will just have to drop their prices. This is what a Depression is all about. YOU CAN'T HAVE REAL INFLATION WHEN WAGES JUST DON'T KEEP UP.
This Great Depression II (which started in 2008) is going to last for at least 12 years. There will be no inflation during that period. There also won't be any opportunity whatsoever for inflationary money-making during that period.
You Endless Growth guys really ARE stuck on stupid.
Here's my play. Put 65% in a 4% 1 year CD. I'm counting on deflation in the short term.
The other 35%, well, I dunno.
For some reason I just do not believe this thesis. The government may print all it wants, but if the banks don't want to lend and if people are unwilling to borrow, we will still see deflation.
Will inflation or perhaps hyperinflation come back. Of course it will. I mean, how can we refuse to believe that, we've had it for centuries. Have we not???
I happen to believe Mish's theory much more. Banks are receiving money from the fed and they are buying tons of treasury with them. This demand will not stop any time soon. This is the POINT Keith is missing and will continue to miss until he keeps believing Schiff's thoery.
As one of rescent articles pointed out, by 2012, US banks and the fed will be majority holders of US treasuries. We will be in much better shape and those waiting for the dollar to CRASH will be in for a treat. Do I think gold is a good investment. Of course it is.
Dny
Mark from San Diego,
Good points made there. The only currency, other than the dollar is the EURO. And honestly, it's short term future looks bleak right now and when shit hits the fan.
There is nothing else right now then US treasuries and GOLD. Nothing. You either loose your money in any other currency or investment or you keep it in t bills and gold. Period.
Keith has been saying that t-bills are about to crash for over a year and a half, along with the majority of the bloggosphere (correct me if I'm wrong).
Where is the crash Keith. T-bills look much better today than a year ago.
Dny
Few thoughts because some of you are a bit slow today
1) the us dollar against other currencies - I'll take the dollar. The pound and euro and franc and ruble and peso are all in a heap of trouble too. the yen continues to be strong, but at any minute the japanese could intervene. So I wouldn't be out exchanging dollars for any other currency
2) I think t-bills will CONTINUE to rally. I've said only a fool would short them now, given that the US is going to be buying their own paper. Good luck fighting the trillions that the fed has in its gun. If I was going to bet on t-bills, I'd be long, not short right now. that will change one day, but not for quite some time.
3) dollars and almost all other currencies will be debased by their governments. and of course, that means........... inflation.
getting it yet?
getting what you should do to prepare yet?
if not, listen to jim rogers and peter schiff. they've got some ideas for you.
@Peahippo: if we were just considering a recession/depression, I'd agree with you. But you underestimate the incompetance at the Fed and the USG. The are already talking about giving the remaining $350B of TARP to homeowners and starting a $850B jobs program. That is just the beginning. The Fed is deliberately trying to cause inflation to counteract deflation and the money supply is skyrocketing. So far, the money has not made it into consumer's hands. But what are the odds that Ben will get it right, counteracting deflation with precisely the right amount of inflation? Has he ever gotten anything right yet? Has he demonstrated himself to be anything other than a clueless idiot? Over the next year or two, the Fed and USG will pump another $10+T into the economy and eventually the dam will break. Hyperinflation, run on the dollar, currency crisis - I can't say exactly how it will play out, but it's clear that it will end in disaster.
"And with oil, it depends on your time horizon. Does ANYONE doubt that oil will (priced in US dollars) be more expensive five years from now? It's going to be a LOT more expensive folks. A LOT more."
I agree. Even IF things go according to plan - the Saudis have said very often and very publicly that they want to maintain price stability near $75 a barrel. I think it will take some volatility to converge on that number. But that's something to factor into investment decisions - the Saudis will take actions (from pricing/production decisions to use of their sovereign wealth) to bring that about in either direction.
I'm glad to be reading so many contrary analyses - it never pays to be stuck in one's own bubble.
I think one fundamental difference is that Keith seems to be welded to an Austrian interpretation of inflation as being purely a phenomenon of money supply. The point being that even without growth in wages, it can still happen because wage increase are just one form of increasing the velocity of money and thus the money supply. (correct me if I'm not getting you). And with the recent "innovations" in leveraged finance, we've recently witnessed the phenomenon of private parties being able to expand the money supply on their own.
I think you other posters are working from a more neoclassical/Chicago model.
I think what will happen will be somewhere between the two. Or something different. I don't believe there's any precedent for hyperinflation in a global reserve currency, or a currency backed by petroleum. I don't think we understand all the factors of how that works. I'm also not convinced that the reinflation plan will succeed. They're trying to arrest the crash. If that doesn't work, will they keep printing?
The key to hyperinflation is that it becomes a self-reinforcing feedback loop. I think that loop will be broken before it gets too far - either through an even deeper crash coupled with demand destruction or through a coordinated "shifting of the playing field" of global finance and capitalism. The rules say hyperinflation is the result. But if the terrain is changed different rules may apply. Markets play themselves out across the map of resources, regulation, and behavior.
I worry that the new rules could be worse than the old.
I definitely believe the value of the dollar will drop. The big question is "relative to what?" because most other things are dropping too.
"but I am picking up depressed oil majors and oil services as a wave of consolidation will now hit."
That's where a fair amount of my money is going.
All paper currency will be tested severely. All central banks around the world trying the same nonsense as the FED is. Stay away from paper currency. Maybe even housing is a decent investment in some areas of the US. Get some (farm)land. Get an efficient heating/cooling system. Start a garden. Plant some fruit/nut trees. Get a clue, good luck to all.
This guy is nuts.He makes me want to jump off a bridge.Have faith in america.Support your economy.When people are scared it is the best time to buy.do not beleive this doomsday bullshit, rhetoric.
"Have faith in america.Support your economy."
Faith-based economics is what got us into this mess. Economics is not about faith - it's about rational analysis. Faith is what keeps the sheeple sheeple. Skepticism is what's needed.
You can argue that people here may be engaging in a different kind of faith. You may be right, and I encourage well-reasoned arguments to that effect. But advocating that people adopt the opposite set of fantasies is not reasonable. Especially when it's tinged with vague implications of antipatriotism.
Provide arguments as to why you think the people here are wrong.
"When people are scared it is the best time to buy"
I agree. But are they scared yet? Not Joe and Jane average - who aren't market movers. I mean the real money.
For those interested in a counter-argument to hyperinflation:
http://tinyurl.com/ayh6p5
That's my line! But I'll sell it to you for pint.
Hyperinflation baby! Hope you like it mixed with some stagnation.
May you live in interesting times.
The Fed creates money but unlike Bernanke's speech they ARE NOT dropping it from helicopters and they won't, ever. That's why they won't bail out individual home debtors. That's the real moral hazard, having the masses assume financial assistance and everyone defaulting to join the party.
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You know how inflation started in the Weimar Republic?
Miners went on strike and government kept on paying them.
The industrialists and landowners loved it so they continued.
Why couldn't this happen in North America if things got worse?
First sign of inflation:
Big three go under. No cars produced for a while.
Government picks up the tab all workers and retirees keep their benefits and spend their money in a shrinking economy.
Pretty similar to Weimar Republic. No?
Let's look at it from another angle...
70% of American wealth is owned by 55+.
Most of the debt is owned by less than 55, thus deflation will make the rich even richer.
If wealth discrepancy gets larger, there will be a revolution started by the young!
I can't help but think that there will be a transfer of wealth from the old to the young. Inflation will do that.
Peter Hollin said: the Saudis have said very often and very publicly that they want to maintain price stability near $75 a barrel. I think it will take some volatility to converge on that number. But that's something to factor into investment decisions - the Saudis will take actions (from pricing/production decisions to use of their sovereign wealth) to bring that about in either direction.
You left out starting a war or at least funding terrorism as a way to make oil prices go up.
Schiff is using shameless scare tactics now in order to recoup all the losses he has had the past couple of months. We are in deflation and will be for a long time to come. Talk of hyperinflation is utter nonsense and Schiff knows it.
Jim S: This is IT. IT is now. IT is out of CONTROL!
Keeth: IT hath been fortold.
And for those that don't think we can have a depression and hyperinflation, think again. I'll believe in deflation when my 1/2 gallon of organic milk goes from $4 -> $1. Wish to God it would happen.
Oil is only down because it was levered on the way up. Now its levered on the way down. You deflationistas are gonna get whipsawed like a mofo.
i'm not sure why some are saying that without higher wages you can't have inflation or hyperinflation. that's just not true and here's why:
inflation can come about through debasing the dollar, as keith said...and bernanke as well. it is clear that by lowering the value of the dollar you make goods more expensive. that's inflation through currency debasement, not through wages (with the latter i'm assuming there are no productivity gains with the increase in wages. as we know, higher wages in and of themselves don't cause inflation as long as there is higher productivity that goes along with those higher wages).
also, you can have inflation by printing more money and handing it out for free or at low interest rates. what do you think is happening in Zimbabwe? they are just printing money...that's it! printing money and handing it out. in fact, it is the borrowing of money (credit) that has caused so much asset inflation, and other inflation as well (e.g. tuition, which is driven by the availability of credit and nothing else).
i do agree that inflation won't come unless 1) the banks start lending all the money they are getting, or 2) the fed doles out money to people for free.
the fed wants the banks to lend money. that's all we hear about; they want to re-inflate the economy. they want to do this by having people take out debt because that, in their view, causes economic growth. they will do everything possible, eventually, to get banks to lend and people to borrow.
the fed and the govt. will also work towards #2 by buying up the toxic debt (house, car, etc.) and re-pricing mortgages. this will have the effect of handing money to people...money they shouldn't have and which will contribute to inflation.
right now we are in deflation. no doubt. that's what happens in recessions/depression. "depress" means "to go down" and that's what's happening to prices, with the exception of food and staples.
prices are going down now because businesses need to clear the inventory they bought six to tweleve months ago for the holiday season. prices will continue to go down next year because of the continuing cycle of layoffs and business contraction.
however, there is a very good chance that when the contraction stops we will go into an inflationary -- perhaps hyper-inflationary -- period, depending on how the Fed manages the money supply. with the trillions they are dropping now and in the future, my bet is that we will experience at minimum inflation, and at worst, hyper-inflation if the fed does not take these trillions out of the system.
for those who don't think there will be inflation at some point, i would like to know one thing: how does an economy inject close to, or more than, its yearly GDP in such a short period of time and NOT have inflation, assuming that money works its way into the hands of people like the Fed wants (i.e. the banks stop hoarding and lend it)?
I can't help but think that there will be a transfer of wealth from the old to the young. Inflation will do that.
You must be a Supply Side Realtor.
The immense stupidity of your kind never ceases to amaze me.
Deflation transfers wealth to the young, when they can buy food, energy, housing etc (soon to be education and medicine) for a lower percentage of their income.
There is currently massive destruction of wealth for 55+ who own overpriced houses, 401Ks, etc.
Young people will be able to build wealth in the future when they can save with a decent interest return, buy stocks of companies with sustainable earnings, and buy housing at a lower cost than renting.
The immense stupidity of your kind never ceases to amaze me.
You must be a Supply Side Realtor.
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I like how it's always the rudest ones who make the most off base assumptions.
My father is 55+ and would love deflation.
Most truly rich 55+ are in FIXED INCOME with NO DEBT and couldn't give two hoots about the value of their home. Fixed income has been going through the roof, in case you did not notice.
With deflation your debt gets larger and larger vs. your pay, if you have one.
Keith,
This post is irresponsible.
Schiff said invest in the Icelandic Krona and the Russian Ruble - BEFORE they crashed.
I like Schiff. But he only focuses on the US.
This post will hurt others.
Are you in the Ruble, Keith?
Thanks.
Poor Peter Schiff must be under tremendous pressure lately. With his investments cratering and totally failing on the prediction that other markets will de-couple from the US dollar.
You can hear him in his last few talks ranting like a desperate man. Listen to his chat on Dec 18th where he is talking about the dollar going down by 5% in the last two weeks. He mentions the dollar may continue to go down 5% every two weeks - he sounds just plain desperate. Not a good emotion for a Chief Investment officer to have!
Keith, remember you said that cash would be king- then qualified it by saying US dollars are not cash. Well you made a bad prediction in the short term in spite of your otherwise excellent hit rate.
Peter is advocating getting into Euros, I thought he was advocating getting into the Pound about 6 months ago. Ouch. The Pound cratered 25%+ against the USD. And is likely to fall further.
Look, if the USD goes to nothing that's 25% of the world economy. Don't tell me that would happen independently and other currencies would be sitting pretty.
Honestly the flight capital can take is quite unpredictable. If you want to profit from FX by all means gamble. Get out of the US dollar because a big run up will be followed by a pull back. Then again, the next shoe that drops could cause another rally in the USD.
Otherwise take a hedge strategy. I have 30% of my net worth in Singapore dollars, about 20% in Thailand (cash in Thai baht and a fully paid property out here) and the other 50% is in USD (cash and stocks) - of which 15% is in a Chinese stock. 50% - 50% hedge in the US and overseas. That is the true definition of the hedge. If the USD comes down fast I will move Singapore dollars into US- when it rallies I'll balance back the other way. This is probably the best strategy for wealth protection, IMHO.
The last 2 years I was earning in Pounds and moved all that into US dollars month by month- glad I have no exposure to the Pound now.
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On commodities- I think they have further to fall before they jump back up. Yes there is an awful lot of bailing out but these are toward debts. In the past creation of money was really done by the banks and hedge funds (through the Yen carry trade and other exotic instruments)- this created money ran up the price of commodities and other goods. Now this has completely unwound, hedge funds are closing and banks have stopped lending. People are without jobs and cutting back their spending. So why is the price of oil suddenly going to shoot the moon??? It isn't. Not until the jobs come back, not until banks start lending again, not until we have more speculation in the markets.
OK this will happen but it may take months or years. Keep watching and proceed with caution.
Keith, you are calling the bottom way too early just like you called the housing bubble early. You are right but being right doesn't always get you paid.
And as for Schiff- I like him but cannot overlook the desperation in the man's voice. He's under too much pressure to be giving good advice at this point!
-Mike
With all the inflation coming where can I get a job that pays $2 million a year? I currently earn $230K per year and have to work pretty hard for this... not too many people on the ladder above me.
So $2 million job, anyone? Anyone?
Check, check baby check, one, two.
-Mike
investorinpa
The Royal House of Saud doesn't need to do that in order to control oil prices. They don't want excessively high prices either - who does America call when we want the taps opened up a bit? The Saudis.
They need to do so in order to maintain their precarious position atop their Wahabbi population. Many of whom view them as apostate lapdogs of the west. Remember - Bin Laden's goal has never (in the short term) been primarily about the US. It has been to topple secular governments in the Arab world.
It's a delicate balancing act - one that we've been tied up in over the past 4-5 decades. But I believe it is not connected to their price targets for oil.
Iran, on the other hand....
Schiff told us yen and gold
Might want to keep up - what was a good investment yesterday may be a terrible one today
Keith,
Schiff also said the dollar would keep crashing and the Euro / Pound was a good investment (this was as of June 2008, I know as I was thinking of investing with him.) Yes, Yen was thrown into the mix but so was Swiss Francs, Singapore and Australian dollars. Frankly speaking a lot of these currencies got totally creamed, besides Yen the USD is the best performing currency since October.
Peter was always long and strong on gold but right now it takes 22 barrels of oil to buy an ounce of gold. In July it was only 7 barrels of oil per ounce. Either oil has to come back up a long way or gold needs to fall to get to the rough historic ratio of 10.
Why 10? Why not?
-Mike
Schiff is correct again.
The green dollar god is dead.
Schiff is right on in that ANYTHING the government does (our naughty overpaid employees) will only make the problem far worse than it is now.
This is nothing short of crimes against humanity - perpetuated by our very own government - in order to save the rotten hides of the elites with their ill-begotten gains.
However, it is the masses that make this country function, so bailing out a few overpaid crooks does nothing to solve the problem, except add more debt burden to future generations.
We are now in the process of transforming into a 3rd-world nation.
Got popcorn?
Hyperinflation within 5 years is only going to produce an LA-riots scene in every major city across the nation. People just can't pay, and then products and services won't be sold, and all those providers will just have to drop their prices. This is what a Depression is all about. YOU CAN'T HAVE REAL INFLATION WHEN WAGES JUST DON'T KEEP UP.
Inflation is over your head. You just desribed it, prices rising until people can't pay because dollers don't have value. You seem to be saying inflation can't happen because people wouldn't be able to buy stuff. That is inflations endgame, that is collaspe. hellicopter boy will provide the energy to drive this movement. I'm sorry your cash will be worthless. If it was made passively it never was real. Just a part of a 20 year ponzi scheme. I hope you have real skillsets and can do real work. The ponzi scheme is over and all the fake wealth created buy it will be destroyed by inflation. So go out and buy something while it has value. Good luck.
I read a lot, but being an engineer type dude I don't know HOW the hell you people know all this stuff.
In engineering, conditions lead to a result. With enough experience the results can be known from the conditions (unless you get idiots involved, which is rather common in this field (aerospace). Fraudsters and idiots, yep lots of em.
But back to my point, this shit is way harder to get a handle on, imo. Great debate though! I'll keep reading (with pop-corn) :)
I don't think that gold, oil or any other commodity will see daylight for another 10 years. The cycle is 20 years long on commodities. We are going to have an ugly few years ahead of us.
People can make money in bad times too. Look at WalMart. Cash is king.
>prices rising until people can't pay because dollers don't have value.
Yeah, and we'll be freezing our asses off cause we can't afford electricity since those damn windmill (our friendly green choice) STILL WON'T FUCKING WORK, BECAUSE THEY'RE NOT TECHNOLOGICALLY FEASIBLE.
But we'll feel good about ourselves cause we're SO PC.
>I can't help but think that there will be a transfer of wealth from the old to the young. Inflation will do that.
I'm no expert here, and for the most part just reading, but THAT makes sense!
ARGENTINA.
It's just that the USA economy is 1,000x larger and will take much more time to play out.
Otherwise, it's more simular than disimular.
Enter the 3rd horseman. It hath been foretold 2,000 years ago.
You guys will be left waiting. There will be NO destruction of the dollar.
YOU HATH BEEN FORETOLD. The economy will tank around the globe, the dollar will hold, other currencies will crash, and we'll emerge as the same world power in a few years. Less debt, more productivity, a more solid economy based on real fundamentals, period.
You guys don't get it. Schiff does not get it.
Keith,
Weren't Schiff and Rogers the ones saying to buy international stocks and currencies. What's up with them now. What excuses are they making up now. Suckers. They got destroyed in the last few months.
Dny
Look, you people are utterly bugf*ck about this hyperinflation thing. The truth is that we already underwent a strong inflationary period. With increased prices of nearly everything, and consumer credit supporting any lack of increased wages, we already had our "hyperinflation".
Now that consumer credit has shrunk remarkably, and employers are laying off in huge numbers, and any idea of a wage increase is years dead, then you CAN'T HAVE HYPERINFLATION in this environment. All those dollars Bernanke is printing are SUPPLY-SIDE ONLY. They will NOT reach YOU, the consumer. So when Mr. Supply Sider tries to create another "wealth effect" and increase his prices, his sales will plummet. His customers simply can't keep up with him. And he can't keep up with plummeting sales, either ... so he'll drop those errantly raised prices, FAST.
We're in a Great Depression II. It will last 12-17 years, at the current rate of government interference. During that time, you CAN'T have hyperinflation.
And the U.S. Dollar? Yeah, we still make lots of stuff here in the USA. The prices of those plasma TVs may go through the roof, but wheat and domestic oil and aluminum and plastic products will be denominated in the U.S. Dollar, being from domestic sources, and you'll still be able to buy those with your dollars. The USA is too big to fail with respect to itself. Our currency will still be good, HERE. Too bad for you if you want an 160-inch plasma TV in 2010, however!
Inflation when people have no jobs or are getting pay cuts? What a lack of common sense.
Oh, I got it, Obama idiots think that he'll jump start the economy by injecting money into bridges and roads. Do any of you work in that field? I rest my case.
Look look sheeple, the messiah has spoken onto a microphone. Poof! the economy is all tip-top now, and AAPL stock will go to the roof.
You see, many of you should have paid attention or taken Economics 101. There's a major shift in consumer behavior that's affecting the aggregate demand curve. Americans have become Japanese and will start saving. Of course, there will be the usual zombie-immigrants who will continue to splurge until they get laid-off or bankrupted or lose their credit, like the fools they are (otherwise they would have fixed their own POS counries).
I'm from Russia and we were through hyperinflation in the begining of 90th. It started not when everybody has big salary. But when economy collapsed.
USA needs inflation to return it debt. Also it will be easier to service the debt. You spend 25-30% now of your budget for servicing the debt.
On the other hand dollar is a reserve currency. But it will not help because other countries now spend their reserves to support their economies. We have spent a third of our reserves already. That's make pressure on dollar.
A the moment (and here Schiff is right) we have a bubble in USA tresuries. When people stop bying them Fed will take them for new printed dollars.
Ok, what we have? Every new dollar takes value from all already existed dollars (unless it goes to some reserve). Now a lot of dollars (which were frozen in reserves) are sold at the market and Fed is printing new money (and less tresuries are need the more amount of dollar will be printed. Also we need to count that production of commodities is reducing because of the crisis. So we have more money and less goods - the streight way to hyperinflation.
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