Could the Weimar Hyperinflation Happen Again in America?

JapanDebtToGDP.jpg


If a high debt-to-gdp ratio leads to hyperinflation and currency destruction, why did it not happen in Japan?
 
The group think of the gold rush and dollar demise is just a case of 'buy the rumour, sell the fact'. Markets have gone hysterical on a piece in the independent, which is highly speculative and talks of a ten year plan to replace the dollar. The other reason is inflation 'fears'.

Nothing but speculation. How high does it go while the market waits for inflation? What if it doesn't appear?

As William Engdahl wrote previously, the U.S. currency is reserve because of its military. The dollar is backed by F-16s, Abrams tanks, a fleet of 11 carriers and 130 military bases worldwide.

In 1979, the dollar faced calls to end its reserve status and Volcker raised rates 300% in a few weeks.
That shored up confidence, although it hurt the economy, bringing investors flooding back to the dollar. Nothing is out of limits.

My entire issue with the market is speculation, fears and hopes. These are driving the 'all assets vs the dollar' and it will take ONE black swan event to force a rush back to the U.S. dollar. Stock markets/oil/gold/risk currencies are all labouring and I await the turning catalyst.

When in history has the consensus ever been right? or the market right? Boom and bust, boom and bust in every asset. Commercial positions are near record long in euro and gold. That's just a red flag historically.

What use will a possible basket of currencies 9 years down the road be if markets turn and start rushing back to the dollar?

U.S. is in a precarious position but what about europe? Latvia/Iceland on the brink of collapse. Spain/Ireland not looking too great there either. All these bank assets are intertwined. Maybe the U.S. is the wrong place to be looking for a broken economy.

Speculation on a 7% China growth rate for ten years? Can't see it. "China’s economy is growing at 2 percent, not the 7.8 percent its government claims, says economist Marc Faber. “The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance,” Faber told CNBC. “I’d be a bit careful about China.” This asian domestic demand is laughable.

Nothing is off limits here. The U.S. current account deficit has halved with the weak dollar and this also makes the debt easier to service, so this is maybe why Bernanke is happy to let the dollar fall. He could then raise rates to 1% tomorrow and the markets would go ballistic. There are too many assumptions being priced in to today's markets.
 
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SAINT said:
As William Engdahl wrote previously, the U.S. currency is reserve because of its military. The dollar is backed by F-16s, Abrams tanks, a fleet of 11 carriers and 130 military bases worldwide.
Click to expand...
Not with US foreign policy run from Bejing.

In 1979, the dollar faced calls to end its reserve status and Volcker raised rates 300% in a few weeks.
That shored up confidence, although it hurt the economy, bringing investors flooding back to the dollar. Nothing is out of limits.
Click to expand...

Volcker changed monetary policy resulting in higher interest rates. Inflation was out of control. There was no threat to reserve status.
No chance of Benanke touching interest rates. He would be remembered as the man who sank the ship.

When in history has the consensus ever been right? or the market right? Boom and bust,
U.S. is in a precarious position but what about europe? Latvia/Iceland on the brink of collapse. Spain/Ireland not looking too great there either. All these bank assets are intertwined. Maybe the U.S. is the wrong place to be looking for a broken economy..
Click to expand...
Shoud that not tell you something about the state of the US dollar?


Nothing is off limits here. The U.S. current account deficit has halved with the weak dollar so this is maybe why Bernanke is happy to let the dollar fall. He could then raise rates to 1% tomorrow and the markets would go ballistic. There are too many assumptions being priced in to today's markets.
Click to expand...
Nobody buying anything. Real unemployment over 20%.
 
SAINT said:
The group think of the gold rush and dollar demise is just a case of 'buy the rumour, sell the fact'. Markets have gone hysterical on a piece in the independent, which is highly speculative and talks of a ten year plan to replace the dollar. The other reason is inflation 'fears'.

Nothing but speculation. How high does it go while the market waits for inflation? What if it doesn't appear?

As William Engdahl wrote previously, the U.S. currency is reserve because of its military. The dollar is backed by F-16s, Abrams tanks, a fleet of 11 carriers and 130 military bases worldwide.

In 1979, the dollar faced calls to end its reserve status and Volcker raised rates 300% in a few weeks.
That shored up confidence, although it hurt the economy, bringing investors flooding back to the dollar. Nothing is out of limits.

My entire issue with the market is speculation, fears and hopes. These are driving the 'all assets vs the dollar' and it will take ONE black swan event to force a rush back to the U.S. dollar. Stock markets/oil/gold/risk currencies are all labouring and I await the turning catalyst.

When in history has the consensus ever been right? or the market right? Boom and bust, boom and bust in every asset. Commercial positions are near record long in euro and gold. That's just a red flag historically.

What use will a possible basket of currencies 9 years down the road be if markets turn and start rushing back to the dollar?

U.S. is in a precarious position but what about europe? Latvia/Iceland on the brink of collapse. Spain/Ireland not looking too great there either. All these bank assets are intertwined. Maybe the U.S. is the wrong place to be looking for a broken economy.

Speculation on a 7% China growth rate for ten years? Can't see it. "China’s economy is growing at 2 percent, not the 7.8 percent its government claims, says economist Marc Faber. “The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance,” Faber told CNBC. “I’d be a bit careful about China.” This asian domestic demand is laughable.

Nothing is off limits here. The U.S. current account deficit has halved with the weak dollar and this also makes the debt easier to service, so this is maybe why Bernanke is happy to let the dollar fall. He could then raise rates to 1% tomorrow and the markets would go ballistic. There are too many assumptions being priced in to today's markets.
Click to expand...

The unsinkable great Titanic comes to mind... :-0
 
poborsky said:
There was no threat to reserve status.

No chance of Benanke touching interest rates. He would be remembered as the man who sank the ship.

Nobody buying anything. Real unemployment over 20%.
Click to expand...

The decline in the dollar saw foreign holders dumping their dollars in protest at policy - sound familiar? Volcker fixed that.

Bernanke won't raise rates to risk sinking the ship? So what will he do? Not raise and surrender U.S. hegemony with a whimper?

If nobody is buying anything, should that not tell you about the state of China?
 
Saint is right about the markets being irrational/not logical, but I don't think that's the point. Certainly anyone long on Gold in the last few days won't care if the markets were logical or not. And of course it has sold off from the high and will probably continue to do so for a while, although like Arnie, it will be back.

Some assorted views:

Safe Haven | What Are The Gold Price and Its Fundamentals Telling Us About the Future of Money?

Safe Haven | What is Really Happening to the US Economy?

Adam Brochert:
Safe Haven | Gold - Long Term Thoughts
Safe Haven | Gold is a Currency You Can Rely On

and this one is interesting, whether you are in the deflationist or the inflationist camp:
Safe Haven | Deflation Relative to What?
Adam Brochert said:
Where the argument of the deflationists and hyperinflationists come together is at the very apex of the pyramid. Those who shun the notion of Gold as money are going to feel the pain when history repeats yet again. Because in the final painful layer of deflation, people flee paper fiat notes for true non-debasable and non-debt based cash. That's where only Gold comes in handy. You see, at the apex of Exter's pyramid, paper fiat cash notes deflate relative to Gold, which is paradoxically inflationary in a sense as it requires more paper cash to buy Gold if this phase comes to fruition (and I believe it will).
Click to expand...

Gold Versus Paper: Our greatest inflationary moment

Adam Brochert said:
So in the end, both the deflationists and inflationists will be proven right in a pragmatic sense, but I think we have to go through further deflationary pain before the step of a one-time rapid currency debasement occurs. Now this debasement could occur intentionally by government decree or via capital flight from the United States and either is possible. One of the reasons this is predictable in my opinion is because every wave of deflation is followed by more and more intense fiscal stimulus that is less and less able to be supported by underlying economic reality. In the end, something's gotta give.
Click to expand...


Adam Brochert said:
Switching some of one's savings into physical (not paper) Gold now, while it can still be readily found, provides insurance against what is now an almost unavoidable future currency debasement event. Only the timing is still unclear in my mind, but you can bet that such an event won't be announced in advance and you won't be able to find physical Gold as a retail investor when it happens. Cash will ultimately deflate further relative to Gold and when it happens, the move will likely be fast and powerful. I think a dip of the Gold price to the low 900s or high 800s is dead ahead and will provide another great buying opportunity.
Click to expand...

[That moment may now have passed actually, although there will be other buying opportunities I'm sure - Mike]



Safe Haven | Gold is Money and Nothing Else
Adam Brochert said:
This is why the inflation versus deflation debate is so spirited and so important to those trying to preserve and/or grow their wealth. Gold is a hedge. It is a fair (not great) inflation hedge and a good deflation hedge and it provides catastrophe insurance as well. I would never advise anyone to put all their money in Gold but I also think it's foolish at this point in the economic cycle (i.e. a Kondratieff Winter or secular credit contraction) not to have at least 5% of one's liquid net worth in physical Gold held outside the system.
Click to expand...

[My emphasis - Mike]

Now for all I know, Brochert and the rest may have a deeply vested interest in talking up gold. However, and FWIW, I don't see too many flaws in their logic.
 
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SAINT said:
The decline in the dollar saw foreign holders dumping their dollars in protest at policy - sound familiar? Volcker fixed that.

Bernanke won't raise rates to risk sinking the ship? So what will he do? Not raise and surrender U.S. hegemony with a whimper?

If nobody is buying anything, should that not tell you about the state of China?
Click to expand...

"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." Ben Bernanke.

Seems to be a lot of talk on T2W about random markets at the mo, but BB might have some influence.
 
From Today:
Fed's Hoenig In Favor Of Early Tightening Of Monetary Policy
10/7/2009 4:40 AM ET

"I would not support a tight monetary policy in the current environment, but my experience tells me that we need to remove our very accommodative policy sooner rather than later,"

"We all know that the neutral rate is not zero," explained Hoenig, and added that it was "equally obvious that a rate of 1 or 2 percent is not tight monetary policy - it is still very accommodative."(y)
 
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SAINT said:
From Today:
Fed's Hoenig In Favor Of Early Tightening Of Monetary Policy
10/7/2009 4:40 AM ET

"I would not support a tight monetary policy in the current environment, but my experience tells me that we need to remove our very accommodative policy sooner rather than later,"

"We all know that the neutral rate is not zero," explained Hoenig, and added that it was "equally obvious that a rate of 1 or 2 percent is not tight monetary policy - it is still very accommodative."(y)
Click to expand...

Its not gonna happen. Xmas is coming and sales are going down.;)
 
Deflation creeping into mainstream U.S.
Stiglitz Deflation Threat Pushes Fed to Stay at Zero (Update1) - Bloomberg.com

...and the UK:
"Both grocers (Tesco/Sainsburys) say like-for-like sales are declining as a result of lower food price inflation, which a year ago was in double figures but has now almost completely disappeared."

Note that food and energy are conveniently left out of the all-conquering core CPI.
 
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