Could the Weimar Hyperinflation Happen Again in America?

[Atilla]

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 think first somebody has to ask the Fed to ask the banks. As the Fed is a law onto it self there is more chance of finding life on Mars... :cheesy:

I totally agree to say that having a growing debt is not good. Who could be silly enough to be against ? Bush and his Republican cronies asking for tax breaks especially for oil companies...

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. Tear downs usually 1/3 of build up. US empire built over the last 150 years thus I give the US 50 years before it is on par with the 2nd & maybe 3rd world. That is ofcourse if it doesn't change its ways and stop relying on its military strength and concentrate on becoming an economic power again.

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. I'm not sure what this TIC report or results is about but without interest rates rising in the US or UK no body will be buying government bonds at these price/rates with hyperinflation around the corner.

If anyone chooses to believe otherwise I would like to challenge you and state you are delusional. That is my very strong honest opinion. :cheesy:

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)

Forgive my cheeky points but such are my views.

 

[Paca]

Atilla,

No problem. You can obviously think what you want...even if there was a serious lack of tangible elements in your last post
May I keep my own thoughts or do you think I am obliged to share your views ?
RGDS

 

[montmorencyt2w]

Poborsky,

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

Technically the thread was about the US, but a lot of what goes for the US goes also for the UK. In fact, the UK is probably in a lot worse shape than the US. The UK does not have the USA's residual manufacturing base, experience of commercially successful innovation (we are good at white elephants like hovercraft and Concorde), vast R&D resources, and vast natural resources to help it out of recovery. Through neglect and in some cases deliberate destruction we have lost what we had beyond hope of recovery. We are fighting unpopular unwinnable wars that we cannot afford, maintaining nuclear weapons that we could not afford in the first place and certainly cannot afford to renew, weapons that we will never use. None of the 3 main political parties here has a clue how to get us out of this mess and the next election will be about as relevant to recovery as the Eurovision Song Contest and a lot less fun.

 

[Paca]

Thanks, Montmorency

I am just interested with the US. I can't make any comparison with the UK, as I am a French trader (nobody's perfect ), dealing with US futures from the French Riviera .

Your view of the UK situation (and hopes for the future) looks very pessimistic.
Is that your own perception or is it shared by a vast majority ?

I 've got a very big respect for British people as I think you have one of the powerfull quality to deal with difficult situations : adaptability.

Take care

 

[Atilla]

Atilla,

No problem. You can obviously think what you want...even if there was a serious lack of tangible elements in your last post
May I keep my own thoughts or do you think I am obliged to share your views ?
RGDS

That is a rhetorical question I need not answer. You can surely decide for your self...


Regarding the serious lack of tangible elements...

1. The Fed is a law onto it self there is more chance of finding life on Mars...
2. Bush and his Republican cronies gave and continued asking for tax breaks especially for oil companies...
3. Tear downs usually 1/3 of build up.
4. US empire built over the last 150 years. (The prediction for the wind down in 50 years for the empire is subject to it continuing with the printing presses and fighting wars to defend its empire with military might)
5. Without interest rates rising in the US or UK no body will be buying government bonds at these price/rates with hyperinflation around the corner.

Which one of these facts do you disagree with?

 

[montmorencyt2w]

Thanks, Montmorency

I am just interested with the US. I can't make any comparison with the UK, as I am a French trader (nobody's perfect ), dealing with US futures from the French Riviera .

Yes, we think we are important, but don't seem to realise that most of the world just ignores us

Your view of the UK situation (and hopes for the future) looks very pessimistic.
Is that your own perception or is it shared by a vast majority ?

I don't know for sure of course, but from the media, etc, I think the mood is pretty grim at the moment. My son is sick of the place and just wants to get out.

I 've got a very big respect for British people as I think you have one of the powerfull quality to deal with difficult situations : adaptability.

Thanks And this is true actually. We "muddle through". We've had plenty of practice (thanks to not preparing properly in the first place ).
My point about innovation, for example....I was a bit overdoing the black picture there. We can be innovative, but we are not very good at making commercial successes. Take the original mini car. Great little car (for its day). Never made a penny for BMC (and look what happened to BMC later). We used to have a successful motorcycle industry, but we allowed the Japanese to run rings around us. We have wasted our natural gas and oil reserves and now depend for supplies on a former enemy (Russia). We have let our energy companies fall in to the hands of competitor nations. Our supposed remaining asset was the world of banking and finance centred around London, and we all know what's been happening there.

Yes, there are still some successful engineering and manufacturing firms around who have found niches and are surviving somehow, but hardly enough to help kickstart a recovery. Governments (of either party) over the last 20 years or so seemed to take no interest in technology and manufacturing industry. It seemed as though the future lay in the service "industries" especially finance.

Take care

Merci. Au revoir!

 

[Paca]

Atilla,

Ok, you surely like to play with others. I do not want to enter that sort of lose/lose game. Because it is a waste of time.

I will just give my sentiment for the first 2 points. Don't take it personally, please, as I am joking.

1) You put together two totally different ideas.
The first one is related to the power of the FEd and its relationship with other Govt bodies and lobbies...but you do not give any detail explaining what the FED wil or will not do to deal with the situation. I am sure you are a great FED insider, and I delect myself in advance to what I will learn from you. For sure, it could be named "In bed with Bernanke".
The second is related to life on Mars. Ok, if we find martian, we will ask them if there is one who has slept with Bernanke.

2) Have you noticed that Bush has been replaced by a guy named... ?
Bush has been elected with the help of the defense industry (and Obama with that of the finance)
Then, what relevance has your sentence with the actual situation ?

...

RGDS

 

[Atilla]

Atilla,

Ok, you surely like to play with others. I do not want to enter that sort of lose/lose game. Because it is a waste of time.

I will just give my sentiment for the first 2 points. Don't take it personally, please, as I am joking.

1) You put together two totally different ideas.
The first one is related to the power of the FEd and its relationship with other Govt bodies and lobbies...but you do not give any detail explaining what the FED wil or will not do to deal with the situation. I am sure you are a great FED insider, and I delect myself in advance to what I will learn from you. For sure, it could be named "In bed with Bernanke".
The second is related to life on Mars. Ok, if we find martian, we will ask them if there is one who has slept with Bernanke.

2) Have you noticed that Bush has been replaced by a guy named... ?
Bush has been elected with the help of the defense industry (and Obama with that of the finance)
Then, what relevance has your sentence with the actual situation ?

...

RGDS

No offence taken and none intended.

The Fed is not accountable to anyone. Not the Senate, the president or any other force or government body. In fact I don't know to be honest. What I do find strange is that the worlds super power can pass $800bn with no accountabiilty as to how that money is spent is my point.

Basically, Fed will not tell banks to increase their reserve rates. The Senate can not tell the Fed what to do.

I think it was more of a neo-con thing with Bush and Dick Chaney was running the show - big pal of Bush senior the ex-CIA man. I mean Haliburton made most money from the war in Iraq and no doubt still continues to.

After the grissly mess left behind by the republicans what better man to give it to but one who carries the names Husseyin and Obama and happens to be coloured who's daddy was a muslim too I think. If one wrote a novel of fiction this would be a daring plot to contrive. However, I'm not sure he was selected by the finance industry. No doubt the fact that he nodded to the $800bn stimulus package would have helped.

At an acedemic level of interest I'm in a profound way honoured to be living these most interesting of times.

I'll be interested in the outcomes in the next 10-20 years when I'm sure we'll all be considerably wiser than we are today.

Man lives in hope...

 

[Paca]

Atilla,

You will get more information on how the 787M$ stimulus wil be spent through years at this address :
Recovery.gov

In its mandate (money supply role), the Fed has (actually) the power to raise reserve that banks hold in the federal reserve.

But there is also the political reality.
The Fed is normally independent. But it has to testify on its politics to the congress and senate.

On the govt side, we all know the influence of Goldman Sachs.
Obama knows it himself. This is why he is trying to give the FED a new authority toward future control of systemic risks (ie : controlling the too big to fail banks)...which is much more important than controlling bonuses.
The congress is preferring to give that authority to a kind of economic council (to be created).
Certainly, the huge lobbyist power has something to do with that decision.

Anyway, if the FED, is invested with that authority (depending on Obama's ability to convince the congress), it will be easier to deal with money supply.

I totally agree with you, I am also very happy to live these events.
But what I have learnt from past history is that companies have always found ways to bypass regulations put in place after crisis. Profit is driving companies, not common sense.

Then I am not sure we will be wiser in 10-20 years.

But you are right, we can hope for.

 

[poborsky]

YouTube - Alan Grayson: "Which Foreigners Got the Fed's $500,000,000,000?" Bernanke: "I Don't Know."

YouTube - Alan Grayson (High Quality Version): Is Anyone Minding the Store at the Federal Reserve?

 

[SAINT]

The US has printed trillions of dollars but it isn't going into real GDP stimulating moves. It's gone straight to bank balance sheets, who rather than lending to business in order to revive the economy, are hoarding the money to buy the banks which fail and are trying to rid their balance sheet of 'toxic' debt.

Meanwhile, the rest of the country is headed to the poor house. China also injected a $580 million stimulus, which is making up for the loss in exports in the HOPE that global demand will return but it's main trading partner is disappearing. China's reserves are also 65% dollar denominated, so the great Chinese miracle is a one-way bet on continued US demand and stability, which is eroding fast.

This is a false recovery. The GDP numbers work and small upticks in housing, production and sentiment are over-hyped by the media. The choice now is: unwind the stimulus and watch the economy deflate further or print more money and keep the charade going. Either way, we have to pay the piper one day for a credit-inflated economy.


An interesting article and chart which probably sums up this thread:
http://www.marketoracle.co.uk/Article13527.html

 

[Atilla]

The US has printed trillions of dollars but it isn't going into real GDP stimulating moves. It's gone straight to bank balance sheets, who rather than lending to business in order to revive the economy, are hoarding the money to buy the banks which fail and are trying to rid their balance sheet of 'toxic' debt.

Meanwhile, the rest of the country is headed to the poor house. China also injected a $580 million stimulus, which is making up for the loss in exports in the HOPE that global demand will return but it's main trading partner is disappearing. China's reserves are also 65% dollar denominated, so the great Chinese miracle is a one-way bet on continued US demand and stability, which is eroding fast.

This is a false recovery. The GDP numbers work and small upticks in housing, production and sentiment are over-hyped by the media. The choice now is: unwind the stimulus and watch the economy deflate further or print more money and keep the charade going. Either way, we have to pay the piper one day for a credit-inflated economy.


An interesting article and chart which probably sums up this thread:
Quantitative Easing Fuelled Stock Market Recovery :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

Re: your first paragraph there is still a net wealth effect here.

Banks are not worth their share values. Thus shareholder and pension fund wealth is inflated by the stimulus injections - artificially so. These monies will feed into the real economy sooner or later.

I guess we are waiting for confidence to return as and when monies can be taxed or taken back...

But if as you suggest this is a false recovery - than the houses built from pack of cards will fall down. Money will not be paid back and taxes revenues can not be met.


Bankers still getting big bonuses. How can one get rid of toxic waste? Maybe like Barclays create a new company formation and let them have your waste. Thus it is not a write off but a new company with new production contribution to GDP.


Some things simply don't add up... :whistling :-0

 

[clockwork71]

I have read several times in this thread that nobody is buying US Bonds. (Specifically China) THis is not true at all. In fact, they are buying them at a record pace.

Besides, it's all a shell game anyway.

 

[Atilla]

I have read several times in this thread that nobody is buying US Bonds. (Specifically China) THis is not true at all. In fact, they are buying them at a record pace.

Besides, it's all a shell game anyway.

China still buying record amounts of U.S. bonds: report | U.S. | Reuters
The newspaper said China had little choice but to keep pouring the bulk of its growing reserves into U.S. Treasuries, which remains the only market big enough and liquid enough to support its huge purchases.

This I think is more of a confidence trick and a way to China help it self. How long will or can it continue?


Here is another story to view the other side...
US bonds sale faces market resistance - Telegraph

How about this one... Fed buying bonds!!! - What does this mean?

Check the date and see how it matches the first link with China buying debt...
US Fed buying bonds not real source of risk

 

[poborsky]

YouTube - Peter Schiff on Foreign Policy

 

[montmorencyt2w]

China still buying record amounts of U.S. bonds: report | U.S. | Reuters
The newspaper said China had little choice but to keep pouring the bulk of its growing reserves into U.S. Treasuries, which remains the only market big enough and liquid enough to support its huge purchases.

This I think is more of a confidence trick and a way to China help it self. How long will or can it continue?


Here is another story to view the other side...
US bonds sale faces market resistance - Telegraph

How about this one... Fed buying bonds!!! - What does this mean?

Check the date and see how it matches the first link with China buying debt...
US Fed buying bonds not real source of risk

From the Telegraph article:

There isn't enough capital in the world to buy the new sovereign issuance required to finance the giant fiscal deficits that countries are so intent on running. There is simply not enough money out there," he said. "If the US loses control of long rates, they will not be able to arrest asset price declines. If they print too much money, they will debase the dollar and cause stagflation.

From the Asianews Network article

What should worry us the most is that the Fed might be unable to curb inflation. How to recycle the huge amount of money injected into the market when the economy recovers is a thorny issue. The worst-case scenario is that hyperinflation could hit well before the economy has fully recovered.

 

[poborsky]

Interesting article on US employment, or lack of:

BLS Jobs Numbers Contradict BLS Jobs Numbers -- Seeking Alpha

 

[Technically Fundamental]

The US has printed trillions of dollars but it isn't going into real GDP stimulating moves. It's gone straight to bank balance sheets, who rather than lending to business in order to revive the economy, are hoarding the money to buy the banks which fail and are trying to rid their balance sheet of 'toxic' debt.

Banks are not worth their share values

This is the gamble the governments have taken. This is the reason we're in the sh1t.
Aren't they worth their share value?

The banks market their structured assets to model at a time when they were desirable in the market (inter bank anyway) and then leveraged based on the overvalued assets until they were geared to the hilt... Thy were making so many guineas from the complex derivs and these other bloody synthetic credit products that everybody inc shareholders were bathing and they just wanted more and more money until their deposit/loan ratios were (as the auditors should have picked up :-S) indicating a risk of continuing as a going concern. These problems were ignored. Then bang... everything blows up and they got rumbled factoring in sketchy debts into their structured assets and they all have to be written down. Net affect? Less assets, higher gearing etc but they are so ingrained in our way of life it's impossible for them not to produce a massive income. So QE sorts the balance sheet to restore confidence in the sector which can be measured by share price as an indicator of demand (or has share price risen due to changes in equity? the arabs pulled out of barclays at a loss remember).

All depends on how you look things. I can't see them ever falling if everyone continues to ignore the elephant in the room. Not until it's too late anyway.

 

[SAINT]

The banks market their structured assets to model at a time when they were desirable in the market (inter bank anyway) and then leveraged based on the overvalued assets until they were geared to the hilt... Thy were making so many guineas from the complex derivs and these other bloody synthetic credit products that everybody inc shareholders were bathing and they just wanted more and more money until their deposit/loan ratios were (as the auditors should have picked up :-S) indicating a risk of continuing as a going concern. These problems were ignored. Then bang... everything blows up and they got rumbled factoring in sketchy debts into their structured assets and they all have to be written down.

All depends on how you look things. I can't see them ever falling if everyone continues to ignore the elephant in the room. Not until it's too late anyway.

Good post. And what did central banks do with the 'toxic assets'? They basically created a hedge fund with printed money which is in our, but also our childrens names. China et al are involved in this printing ponzi scheme to add confidence to the market in the HOPE (I hope) that they will stimulate the economy. It's a one way bet on recovery.

It pains me to watch all the intellectuals who get carried away and jump on the gravy train. Don't judge Bernanke and co now; judge them in a year, or two years or longer. They are prolonging the crisis. I could go into a job tomorrow in the Fed or the Boe or the ECB and just print money.

The fact still remains that never before in history has this type of operation worked. Japan tried the same thing in the 90s but the difference there was that they had a high level of savings and the government had large reserves. It took them 15 years to show any growth or stability.

We're doing this with monopoly money. They should just pull Madoff out of his cell to act as an advisor.

 

[Technically Fundamental]

The fact still remains that never before in history has this type of operation worked. Japan tried the same thing in the 90s but the difference there was that they had a high level of savings and the government had large reserves. It took them 15 years to show any growth or stability.

We're doing this with monopoly money. They should just pull Madoff out of his cell to act as an advisor.

Ah but the difference is that this is a coordinated global effort. I think it's an equity tightrope walk with a very short balancing tool. Also, could the fact that there is a sigle European currency as opposed to a million not have an impact?