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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘hyperinflationary great depression

The Economics of the World Apartments

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by Gregory Wyche
Originally posted Oct 26 2010
perfectpitch-media.com

Why pretending to have money is a bad idea…

IMAGINE AN APARTMENT BUILDING REPRESENTING THE WORLD, and imagine different countries residing in the building, each within their own apartment. Each of the tenants in the building own and produce various things. Imagine then, a long time ago the tenants began trading with each other to obtain things they didn’t have. A few of the tenants were lucky enough to have gold mines. It turned out gold was something everyone in the building liked. As time went by each apartment ended up owning some gold as they traded goods with the tenants that had mines. Gold was rare, ever- lasting and considered beautiful. It was worn by both men and women and used to symbolize intimate relationships.

An agreement was made that rather than having to exchange one good for another (which was cumbersome and inefficient) the building would use gold for medium of trade. This caused gold to become currency. Some apartments had used salt as currency as it was once very rare. Later salt was discovered almost everywhere which caused it to lose its rarity (and so devalued) and it was no longer suitable as currency.

Thousands of years went by and some of the tenants decided to use paper notes that would represent the gold they owned. Soon each tenant used their home printers to make notes and paper money was born. This made trade easier since gold was heavy and hard to carry from one floor to next; after all, the building had not yet installed elevators. The ability to exchange paper money for gold created trust between neighbors and trade increased. After a while the tenants of the world apartments enjoyed a wide variety of goods they purchased from each other with notes back by gold.

From time to time tenants disagreed with each other. If the disagreements were serious games (war) were played to resolve them. The winning apartment received a prize from the looser. Games were expensive to play so many tenants began to avoid them. In the 1960’s two tenants (USSR and USA) played a very expensive game in Southeast Asia’s apartment. The game dragged on and in 1971 some tenants worried about the value of the US money.

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The US has no chance of Option 1… So that leaves Options 2 or 3

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from Phoenix Capital Research
Posted originally on September 21, 2010

THE BIG FINANCIAL MYTH BUSTER OF THE WEEK IS THAT THE ALLEGED DELEVERAGING of the US consumer has in fact been a giant myth. According to the Wall Street Journal, if you account for defaults, US consumers have only pared down their debts by an annual rate of 0.8% since mid-2008.

The Journal writes (emphasis added): “Over the two years ending June 2010, the total value of home-mortgage debt and consumer credit outstanding has fallen by about $610 billion… Our own analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.”

That means consumers managed to shave off only $22 billion in debt… In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.

This is a major deal-changer for the US financial system. For months we’re been hearing tales of consumers are doing the right thing by paying off debts and living more frugally. While this is true for some consumers, the Journal’s  article makes it clear that the vast majority of folks are simply spending until they’re officially bust and have their credit lines pulled.

Whether this is because Americans are stuck on a “buy ‘til you’re bust” mania, or if it’s simply because the cost of living in the US today is so high relative to incomes and other expenses that most folks can’t get by without using credit is up for debate. Personally I think it’s a bit of both, with some folks obsessively buying the new iPad while skipping on mortgage payments while others are simply using credit cards to try and get by after being unemployed or underemployed.

Indeed, another story run in the Wall Street Journal supporting the second argument points out that incomes have actually fallen 4.9% since 2000. Add to this the $1.5 trillion drop in household wealth in 2Q10 and it’s clear US consumers are making less and losing even more from their investments. This leaves credit as the one means of maintaining living standards.

Regardless, the primary point is that the US credit bubble has not deleveraged in any meaningful way. The system remains debt saturated to the gills on a personal, corporate, state, and Federal level.

In plain terms, the entire US system is one giant debt bubble. And there are only three ways to deal with a debt problem:
1)   Pay it back
2)   Default/ restructure
3)   Hyper-inflate it away

The US has no chance of #1, which leaves either #2 or #3. Both involve the Dollar taking a sizable hit, which might explain why Gold has begun breaking out while Treasuries are dipping.

Keep your eyes on these two, if they don’t reverse soon then something big is coming down the pike for the Dollar.

A Hyper-Inflationary Great Depression Is Coming

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by John Williams
Originally posted May 04 2010
Courtesy of The Gold Report (http://www.theaureport.com)

SHADOWSTAT’S JOHN WILLIAMS HAS DONE HIS MATH AND BELIEVES HIS NUMBERS TELL THE TRUTH. He explains why the U.S. is in a depression and why a “Hyper-Inflationary Great Depression” is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report.

The Gold Report: John, last December you stated, “The U.S. economic and systemic crisis of the past of the past two years are just precursors to a great collapse,” or what you call a “hyper-inflationary great depression.” Is this prediction unique to the U.S., or do you feel that other economies face the same fate?

John Williams: The hyper-inflationary portion largely will be unique to the U.S. If the U.S. falls into a great depression, there’s no way the rest of the world cannot have some negative economic impact.

TGR: How will the United States’ decreased economic power impact global economies? Will the rest of the world survive?

JW: People will find to their happy surprise that they’ll be able to survive. Most businesses are pretty creative. The thing is, the U.S. economic activity accounts for roughly half that of the globe. There’s no way that the U.S. economy can turn down severely without there being an equivalent, at least a parallel downturn outside the U.S. with its major trading partners.

When I talk about a great depression in the United States, it is coincident with a hyper-inflation. We’re already in the deepest and longest economic contraction seen since the Great Depression. If you look at the timing as set by the National Bureau of Economic Research, which is the arbiter of U.S. recessions, as to whether or not we have one, they’ve refused to call an end to this one, so far. But assuming you called an end to it back in the middle of 2009, it would still be the longest recession seen since the first down-leg of the Great Depression.

In terms of depth, year-to-year decline in the gross domestic product, or GDP, as reported in the third quarter of 2009, was the steepest annual decline ever reported in that series, which goes back to the late ’40s on a quarterly basis. Other than for the shutdown of war production at the end of World War II, which usually is not counted as a normal business cycle, the full annual decline in 2009 GDP was the deepest since the Great Depression. There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven’t seen probably in the history of the Republic.

Let me define what I mean by depression and great depression, because there’s no formal definition out there that matches the common expectation. Before World War II, economic downturns commonly were referred to as depressions. If you drew a graph of the level of activity in a depression over time, it would show a dip in the economy, and you’d go down and then up. The down part was referred to as recession and the up part as recovery. The Great Depression was one that was so severe that in the post-World War II era, those looking at economic cycles tried to come up with a euphemism for “depression.” They didn’t want to create the image of or remind people of the 1930s. Basically, they called economic downturns recessions, and most people think of a depression now as a severe recession.

I’ve talked with people in the Bureau of Economic Analysis and the National Bureau of Economic Research in terms of developing a formal depression definition. The traditional definition of recession—that of two consecutive quarters of inflation-adjusted contraction in GDP—still is a solid one, despite recent refinements. Although there’s no official consensus on this, generally, a depression would be considered a recession where peak-to-trough contraction in the economy was more than 10%; a great depression would be a recession where the peak-to-trough contraction was more than 25%.

We’re borderline depression in terms of where we’re going to be here before I think the hyper-inflation kicks in. You’ve certainly seen depression-like numbers in things such as retail sales, industrial production and new orders for durable goods, where you’re down more than 10% from peak-to-trough. In terms of housing, you’re down more than 75%, and that certainly would be in the great depression category. With hyper-inflation, you have disruption to the normal flow of commerce and that will slow things down very remarkably from where we are now.

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John Williams: Expect Hyperinflation within the next 5 Years

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by Lorimer Wilson
Originally posted March 08, 2010

PUSHING THE BIG PROBLEMS INTO THE FUTURE appears to have been the working strategy for both the Fed and recent Administrations, yet the U.S. dollar and the budget deficit do matter, and the future is at hand. The day of ultimate financial reckoning has arrived, and it is playing out according to John Williams, founder of Shadowstats.com. In further edited excerpts from Slavo’s original article* he goes on to say:

Williams sees** the U.S. economic and systemic solvency crises of the last two years as just precursors to a Great Collapse – a hyperinflationary great depression. [To be specific] he sees:

a) a complete collapse in the purchasing power of the U.S. dollar,
 b) a collapse in the normal stream of U.S. commercial and economic activity,
 c) a collapse in the U.S. financial system as we know it, and
 d) a likely realignment of the U.S. political environment.

Mr. Williams further maintains that the current U.S. financial markets, financial system and economy are highly unstable and vulnerable to unexpected shocks, the Federal Reserve is dedicated to preventing deflation and debasing the U.S. dollar, and that the results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.

Looking at each of Mr. William’s points from a worst case scenario perspective, here are some things one can expect:

1. Collapse of Purchasing Power
Imagine stock markets initially rising to new highs. While many in the public will truly believe we are in a new boom time, the reality will be that prices on everyday goods will be increasing at a rapid rate. Hyperinflation will not be recognized right away, but eventually the public will catch on. Howard Katz has written that we can expect price increases of 70% within a year or two. Imagine gas at $7 – $8 a gallon, a can of tuna for $3 and your favorite flavored latte for $10. This will be the opening act and primary indicator that the system is getting to a breaking point.

2. Collapse in U.S. Commercial and Economic Activity
As the purchasing power of the dollar diminishes, foreign creditors and suppliers will become concerned. Even short-term credit extensions for essential goods like food and oil will collapse. When Iceland’s currency collapsed, the government was unable to purvey basic food goods from international sources because their currency was no longer trusted.

Expect to see store inventories slowly (or perhaps quickly) lower, from basic foods to apparel. If the dollar were to go Zimbabwe, then it would be nearly impossible for merchants and suppliers to accurately price goods, leading to daily, perhaps hourly price changes.

The effects of this type of currency collapse will infect every aspect of the economy, leading to mass layoffs and a sudden stop in transportation via trucks, rail and dryships. Trade goods will cease to move across the nation.

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