Could the Weimar Hyperinflation Happen Again in America?

[poborsky]

On current fundamentals I did a post in 'news/current affairs' called 'ghost ships', you will see that thousands of ships are sitting idle all over the world (not burning fuel). On some of those ships is Chinese exports. On others there is currently 150million barrels of oil approx (two years supply). Governments have also added to stockpiles.

The oil price is moving against the dollar falls and is using the stock market as an indicator of continued demand. Traders are literally hoping for recovery.

Alongside the supply offshore, we are in a deflationary environment. If this gathers pace, the oil price will then match fundamentals and drop to 30 again.

The economy should take the heat out of demand for a few years and maybe green cars and sustainable energy will come in when it recovers. With all this cap and trade, there will surely be a move to reduce car emissions.

Agree about the oil price, I am short at this price and will add to it. Do you think all that US money printing will have any side effects? US markets are struggling IMO at this level. The Goldman arm of govt are propping up the market via the zombie banks. The US need to accept that the credit system is broken, admit it and get on with sorting it out instead of pretending all is OK. If they dont and there is no sign of them doing so then I think we will see new lows on the S&P early next year.
Lower oil prices will mean a recovery in world trade and when the world finally realizes that there is not enough oil to go round it will be too late.
The green revolution is the next bubble. Like the tech bubble we will see companies without profits and track records valued at silly amounts, then when the morons have been fleeced it will be time to move on.
Cap and trade is about tax. Nothing more, nothing less.
There is no alternative to oil. Modern food production is about turning oil into food. A new car takes approximately 25 barrels of oil to manufacture.
150 million barrels of oil may sound like a lot but it is not two years supply, it is TWO DAYS supply. The world uses around 30 billion barrels of oil each year. The US uses 20 million barrels each day.
Yes there is a lot of oil left in the world. Alberta tar sands contain 1 trillion barrels of oil. 175 billion barrels are recoverable. The rest would take more energy put into recovering them than it would be possible to get out. In other words it would take more than 1 barrel of oil to get 1 barrel extracted. Apart from the use of vast amounts of natural gas and fresh water, tar sand mining creates massive pollution problems and the clean up cost is enormous, but it does provide the US with 3 million barrels of oil each day.
Would the world be going to these lengths if there were vast amounts of easily recoverable oil left?

 

[poborsky]

YouTube - FHA bailout a sure thing

 

[Technically Fundamental]

I saw this last year...
YouTube - Free Energy 400 Billion Dollar Secret

 

[poborsky]

When I see this sort of thing I think govt subsidy.

 

[montmorencyt2w]

I saw this last year...
YouTube - Free Energy 400 Billion Dollar Secret

It looks technically very interesting, but it seems a bit of an energy intensive process, so I wonder how feasible this really is, long-term.

 

[poborsky]

It looks technically very interesting, but it seems a bit of an energy intensive process, so I wonder how feasible this really is, long-term.

I believe they closed the processing plant because it was losing money (I may be wrong). I doubt its possible to get more energy out than in, buts its got to be a good way of recycling rubbish. Having said that its never going to be possible to make more than a fraction of the current oil consumption in this way. It is simpler just to make bio-fuel from crops and even that way can only ever hope to make up a fraction of demand.

 

[Paca]

Hi,
I would like to apologize for my very poor english...

When talking about inflation or deflation, we certainly need to come back to the roots of what inflation is.

Inflation is caused by two factors : either too much money chasing too few goods, or shortage of supply compared with the demand for the goods or services.

The actual situation, then, can be analysed in the light of these factors.

It is true that the US plans to revive the econmy has brought a huge amount of money onto the Markets.
This could be our first cause of inflation. But it can be addressed by... for example : raising the banks reserve needed to officially cover risks or raising FED rates...

Demand is going to be anemic for the foreseen future ... which is normally a disinflation cause

Then when talking about commodities, and with the potential demand from emerging economies, we could see a rise in oil, metals...wich is leading to inflation (again). But the demand in oil is also linked to business activity which is the consequence of consumption (factories and personnal)

But the rise in commodities wil arise only if the recovery is a real one...driven by demand and not by neither speculation nor hedging to the dollar fall.

So, my humble opinion is I can not see actually any serious reason to get a spike in inflation. Even if economists speculate that the FED will prefer to stay inflation growing (in not increasing rates) to give recovery odds more chance to happen.

 

[poborsky]

Hi,
I would like to apologize for my very poor english...

When talking about inflation or deflation, we certainly need to come back to the roots of what inflation is.

Inflation is caused by two factors : either too much money chasing too few goods, or shortage of supply compared with the demand for the goods or services.

Hi Paca, your english is excellent

In this case inflation will be a currency event, Argentina style. Its not about supply and demand, its about countries with too much debt falling apart.

 

[N Rothschild]

poborksy your missing one MASSIVE point which i have made several times. Argentina printed debt in a foreign currency (us dollars) hence they went into hyper inflation as the weaker there currency got the bigger the debt in $ got! how is this going to happen in America? its not..

same thing will happen soon in some of the eastern bloc country's

 

[Paca]

Hi Paca, your english is excellent

In this case inflation will be a currency event, Argentina style. Its not about supply and demand, its about countries with too much debt falling apart.

Sorry Poborsky,

I thought you were talking about the possibility of US inflation or hyperinflation.

 

[poborsky]

poborksy your missing one MASSIVE point which i have made several times. Argentina printed debt in a foreign currency (us dollars) hence they went into hyper inflation as the weaker there currency got the bigger the debt in $ got! how is this going to happen in America? its not..

same thing will happen soon in some of the eastern bloc country's

The Argentine Peso weakened because of mismanagement of the economy by its leaders over a long period of time. The fact that USD is world reserve currency does not exclude it from devaluation. The US has hit a stage now where 1$ borrowed or printed and pumped into the economy leads to almost no improvement in GDP. Without going into all the other areas already covered in other posts, this fact alone means that the US will have no choice but to default on debt either formally or by inflating it away.

 

[N Rothschild]

ok your clearly missing the point.

 

[poborsky]

Sorry Poborsky,

I thought you were talking about the possibility of US inflation or hyperinflation.

I am!

 

[Paca]

The Argentine Peso weakened because of mismanagement of the economy by its leaders over a long period of time. The fact that USD is world reserve currency does not exclude it from devaluation. The US has hit a stage now where 1$ borrowed or printed and pumped into the economy leads to almost no improvement in GDP. Without going into all the other areas already covered in other posts, this fact alone means that the US will have no choice but to default on debt either formally or by inflating it away.

Poborsky,

I got it initially right...we are also talking about the US in this thread.

I do not completely agree with you in your last post.
It is a fact that recent US government plans did very little to the GDP.
But this is not a foregone conclusion.

The 2009 part of ARRA is addressing immediate consumption throught fiscal stimulus (and Medical care access).
This led to growth in income (as seen in the GDP figures) but not in spendings.
Instead of consumption, we have seen a growth in savings...which means people are affraid about their future.
This is due to the rising unemployment and the falling of their assets (401K and property value).

As the ARRA is a multi years plan, we will see, starting in 2010, creation of jobs to cope with instrastructure or clean energy projects.
This will hopefully leads to more confidence into one's future and then in turn a rise in durable goods purchase...and to a rise in the GDP.
The decrease in consumption was also necessary to get the personnal debt level down from where it was.

The other point is the level of US debts...which, in my opinion, is not actually a real problem as the foreign demand for US debt is still very strong.

 

[poborsky]

Poborsky,

I got it initially right...we are also talking about the US in this thread.

I do not completely agree with you in your last post.
It is a fact that recent US government plans did very little to the GDP.
But this is not a foregone conclusion.

The 2009 part of ARRA is addressing immediate consumption throught fiscal stimulus (and Medical care access).
This led to growth in income (as seen in the GDP figures) but not in spendings.
Instead of consumption, we have seen a growth in savings...which means people are affraid about their future.
This is due to the rising unemployment and the falling of their assets (401K and property value).

As the ARRA is a multi years plan, we will see, starting in 2010, creation of jobs to cope with instrastructure or clean energy projects.
This will hopefully leads to more confidence into one's future and then in turn a rise in durable goods purchase...and to a rise in the GDP.
The decrease in consumption was also necessary to get the personnal debt level down from where it was.

The other point is the level of US debts...which, in my opinion, is not actually a real problem as the foreign demand for US debt is still very strong.

If US govt plans have done little to GDP then I doubt borrowing or printing almost 1 trillion more for another stimulus will help very much. What the US needs or needed was for the govt not to intervene. Its buying all these durable goods with credit that partly caused the mess that the US is in. The public need to save more not spend it on more rubbish. Personal debt levels are still incredibly high with increasing defaults on credit cards and property.

Foreign demand for US debt is not high, its fictional. The FED buy most of it with printed money. They funnel the transactions through other countries like the UK. Countries like China are getting out of dollars and buying things like commodities. the BRIC countries are trading between themselves and have cut the dollar out of the loop.

 

[alan5616]

If US govt plans have done little to GDP then I doubt borrowing or printing almost 1 trillion more for another stimulus will help very much. What the US needs or needed was for the govt not to intervene. Its buying all these durable goods with credit that partly caused the mess that the US is in. The public need to save more not spend it on more rubbish. Personal debt levels are still incredibly high with increasing defaults on credit cards and property.

Foreign demand for US debt is not high, its fictional. The FED buy most of it with printed money. They funnel the transactions through other countries like the UK. Countries like China are getting out of dollars and buying things like commodities. the BRIC countries are trading between themselves and have cut the dollar out of the loop.

Hi Poborsky,

You're absolutely correct in what you have said. The Fed cannot go on printing money, without a serious inflationary risk rearing it's ugly head. The UK government have adopted a similar tactic and our debt is now 57% of GDP.

Does anybody really believe that the recent stock market rallies are based on sound investment principles? The reason that stocks have been climbing is because interest rates are so low that it doesn't pay to keep money in a bank deposit account. Investors have turned to the equity markets in the hope that the dividends they receive, from their stock investments, will be above bank deposit interest rates.

I've heard a few analysts describe the present market levels as a Fool's Rally. Only time will tell whether they are right. There are still dozens of banks, in the US, on the Fed's list of being in danger of bankruptcy.

Gold isn't rising in price because people like the colour. There are a lot of scared investors out there who have lost confidence in the global financial structure, based on paper money. If this turns out to be a short term bull rally in a major bear market, the next downturn will be a financial apocalypse.

 

[Atilla]

Poborsky,

I got it initially right...we are also talking about the US in this thread.

I do not completely agree with you in your last post.
It is a fact that recent US government plans did very little to the GDP.
But this is not a foregone conclusion.

The 2009 part of ARRA is addressing immediate consumption throught fiscal stimulus (and Medical care access).
This led to growth in income (as seen in the GDP figures) but not in spendings.
Instead of consumption, we have seen a growth in savings...which means people are affraid about their future.
This is due to the rising unemployment and the falling of their assets (401K and property value).

As the ARRA is a multi years plan, we will see, starting in 2010, creation of jobs to cope with instrastructure or clean energy projects.
This will hopefully leads to more confidence into one's future and then in turn a rise in durable goods purchase...and to a rise in the GDP.
The decrease in consumption was also necessary to get the personnal debt level down from where it was.

The other point is the level of US debts...which, in my opinion, is not actually a real problem as the foreign demand for US debt is still very strong.

Your initial assessment of inflationary causes was correct (imo) however, as your argument proceeded I think you have clouded inflation - debt - growth and confidence with rises in GDP as dissipating any inflationary pressures in your analysis.

From my perspective you have to look at two fundamental factors in your assessment of inflation if you wish to consider the macro economy.

Balance of Payments and the Budget deficit.

1. Both of these elements have been financed by debt as most people will agree.
2. In response to the debt induced sub-prime crises government have pumped in billions of dollars.
3. During this time GDP has fallen.

Based on your simple first argument you have a collasal expansion in Ms coupled with a gross reduction in production. What does that tell you?

With the twin deficits you are looking at Pensions and Medical expenditures and let's not forget the war chest, NASA spend and Pentagon's wet dreams.

Now if you think the increase in savings and growth in productivity will be sufficient to cover the excess than all is well. Otherwise you are looking at inflation and devaluation of the dollar. In fact the two often go hand in hand together.

The fiscal side Keynesian demand management of the economy is all well and good but is it and will it be any match to defeating the twin deficits in a highly competitive global economy? IMHO Just for the record - no I don't think so.

Re: the monetary supply side control needs to be fulfilled. Right now I don't see many countries knocking on the door buying dollar investments.

You want proof look at the Yen / Dollar carry trades... If the mighty Japan doesn't buy these dollar debt who else is in the queue - S.Arabia & Kuwait perhaps... Who knows?

 

[poborsky]

Hi Poborsky,

You're absolutely correct in what you have said. The Fed cannot go on printing money, without a serious inflationary risk rearing it's ugly head. The UK government have adopted a similar tactic and our debt is now 57% of GDP.

Does anybody really believe that the recent stock market rallies are based on sound investment principles? The reason that stocks have been climbing is because interest rates are so low that it doesn't pay to keep money in a bank deposit account. Investors have turned to the equity markets in the hope that the dividends they receive, from their stock investments, will be above bank deposit interest rates.

I've heard a few analysts describe the present market levels as a Fool's Rally. Only time will tell whether they are right. There are still dozens of banks, in the US, on the Fed's list of being in danger of bankruptcy.

Gold isn't rising in price because people like the colour. There are a lot of scared investors out there who have lost confidence in the global financial structure, based on paper money. If this turns out to be a short term bull rally in a major bear market, the next downturn will be a financial apocalypse.

I think GBP is toast long term. Lloyds bank still struggling despite all the money pumped in is a very disturbing factor. Mervyn King as much as alludes to the problems.

The rally in equities has no true basis in economic reality. All the liquidity is being pumped into the stock market and probably leveraged at that. As you say its not doing anything in a bank account. The smart money is already exiting while the public gets fleeced again.

I totally agree about the next leg down, its going to be bad and may well take the financial system with it.

 

[Paca]

Hi Atilla,

I am not sure I have clouded debt-inflation.
What I am saying is that because of any foreseen growth in demand, the result in disinflation term should hopefully offset (at least part of) the debt-inflation pressures.

And the FED can also ask banks to increase the level of reserve to officially deal with risks.

I totally agree to say that having a growing debt is not good. Who could be silly enough to be against ?

Where I disagree is on the consequences of the actual US debt.
I do not know what will happen. But I can"t stand whith any of the apocalyptic vision shared by many of us.
For info. : My statement saying that foreign demand for US debt is still strong is coming from the last TIC results where it was stated that long term debt demand is increasing while security assets demand is declining.

The US economy is not in good shape. But the situation has improved after the possibility of a total collapse as thought after the Lehman story.
The panic can be acccounted for a big part of the following drop seen on the Markets.

Some analysts think Stock Markets are allowed to be that high just because if you remove the panic effect from the Stock Market, then you ve got the crisis trough in october (instead of march) and at 840 for the S&P500 (instead of 666). Then the Market recovery is not that big.

Ok that is speculation, but it works even with an average PER (S&P500) of about 19.3

But globally we are thinking the same : Money supply have to be watched out very carefully (and addressed as soon as a real recovery will take place)

 

[poborsky]

ok your clearly missing the point.

I would be pleased if you could explain. cheers.