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Deep Creek Hot Springs

The Moon is Full



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March 18, 2008 10:18PM

Stagflation/Hyperinflation or
Just The End of Your Way of Life?

.............I was noting to my subscribers the other evening that if you take a look at a picture of a pump price for gas from ten years ago until now, that's around an 18% increase annualized every year for ten years. All the other prices in the real world have risen at commensurate levels like healthcare and all the big items people like me in the real world need to spend money on.

Furthermore, if you plot energy in the last five years, the numbers are bigger. If you plot the last two the numbers are bigger yet. The last one, bigger yet. So what we have here in the real world are prices accelerating at an ever-increasing double-digit rate. Call that what you want. We have real wages basically constant and good jobs are harder to come by. We have a middle class that is going away. We have the majority of the citizens having their wealth, if they still have any, confiscated due to the ravages of inflation, or with toxic financial contact with the healthcare/pharma, legal or government money machines. So in the "not real world" big brother and his corporate media outlets wants you to believe that there really hasn't been much inflation or any significant changes to the status quo and that lie is so big that you may even believe it.............

....................The other big thing that has happened since I last wrote is that the guys on Wall Street figured out how to loan a bunch of money to people that had no ability or even real desire to repay that money except for the fact that house prices were sure to go ever higher which is the definition of a mania. So working through a little bit of that math, with an estimated 30% of homeowners currently upside down on their mortgages, that works out to around ten trillion dollars of real estate still to be walked away from according to simple math and a few basic assumptions I worked out the other night.

In the "not real world" they have told you from the outset that first there was no real estate bubble, then that there might have been one, then that it would be over quickly and now they aren't sure when it will be over and the PR firms are busy working on what to tell you next.

It's not going to be over any time soon. The big question in my mind is whether the whole thing is about to go kaput or if we are just going to witness a continuous decay as the wealth shifts into a very small percentage of the population... as the middle class flames out. Again, that is a subject in itself. That is the subject of the Straussian nightmare; a change in the form of government that is pitched as the same thing as the old government.

So on top of this Wall Street genius of loaning money to people who could not pay, you have the cure for all this mess being printing more money (creating more debt). So they're going to fix a problem of too much debt by creating more debt. Perfect. They're even monetizing it by taking nearly worthless debt for brand new money created with the push of a button and an organized media campaign to tell you what they did and why it was good and why it was not monetization or covert nationalization of the banking system. It is what it is, call it what you want.

So the idea is that by pushing buttons you can cure these ills, but the reality is that big pile of new money is diluting the old money and sending the US dollar into the toilet. I mean, they're pitching it as all good, and what's left of the free markets are in sharp disagreement with the party line.

Now; the only reason the USA has gotten away with the idea that this balance sheet was compatible with the idea of being the world's reserve currency was that the USA was the global kingpin, the Mac daddy... until the empire did what all empires do and that's get too big for their britches.

Then they always start going off expanding the empire into places that are too expensive to maintain, imposing their will on people who don't want their will imposed on, and then that all gets so expensive and they start making so many enemies they start going bankrupt. That's what always happens. It always does. That's probably another one of those human nature things.

So in the real world right now, we have a situation where the banks are bankrupt, the government is bankrupt, the people are bankrupt, and the cure for this is to lower interest rates and create more money (debt) by pushing a button... diluting the value of the money further and causing everything we have going on now. It all makes sense here in the real world. All the pieces to the puzzle fit and none don't.

So is this stagflation or is this hyperinflation? Well, I'm not carrying a wheelbarrow around with my money in it yet, but I do know the prices and costs of everything I need to live are going up at an ever-increasing rate.
The shape of that curve is a polynomial consistent with ever accelerating inflation which some would call hyperinflation. I know that if I earn a 20% return, then I might be keeping up with the increase in the costs of everything I need to maintain my personal status quo. If you can balance a checkbook and multiply, then you know. If you are one of the ones who believe everything you're told, then you have to not believe your lying eyes or not be able to balance a checkbook.

When the cure for all problems can only be to lower interest rates and dilute the supply of the money by creating more money, then that is a vicious cycle consistent with acceleration or hyperinflation.

I really don't like it when people casually compare what is going on right now to 1929, because in 1929 the cure was basically to spend less and now the cure is basically to spend more. Even worse, being the geniuses we are, we figured out a way to amplify spending, called derivatives. They're based on the real thing but amplifiedlike 100 times. So we've already been doing the "cure" for so long that maybe the patient is no longer responding?

So what we are currently seeing, in both gold and crude oil is a loss of confidence. It's a loss of confidence that this whole thing makes any sense.

It's a loss of confidence in the absurd idea that you can create wealth by pushing a button. Since this whole thing now relies solely on confidence and not any intrinsic value, commodities, especially gold and crude oil, are acting as alternative wealth storage devices to paper currency.

If you have a bushel of corn, then you know what that is. You can eat it, or do a bunch of other stuff with it. With a piece of paper with a picture and official looking numbers on it, well you aren't as sure as you were yesterday what you can do with that. There will be no run on the banks this time around, because the banks can always be refilled with ever more worthless money. Instead of a run on the banks, there will be a run on the dollar. A run on the dollar (or run into commodities) is the modern equivalent to a run on the banks back then, for the reasons I'll get into shortly.

So there is a loss of confidence roughly equal to people's confidence in the government and the banking system. This decreased confidence is fueled by the fact that they are creating too much money. The idea with fiat money is that you only grow the amount of it as the total output of the economy increases otherwise you are diluting it. The thought experiment for that goes like this. You have one giant pile of stuff, and one giant pile of money. Right now there is enough money so that one-dollar gets one pound of stuff. Now, if you double the amount of that money, then it takes two dollars to equal one pound of that stuff. Unless the pound of stuff doubles in size, you have just caused 100% price inflation. So, operations like just zapping a half a trillion or so into existence out of thin air means just a bigger pile of money going after the same amount of stuff. So that's what we have going on now. These are financial engineering acts of desperation to save a system by giving it more of what got it to this point in the first place... debt. So when regular people like me think about that, they think, that doesn't make any sense, and they lose confidence.

That's in the real world. On TV things are still good though. So if you don't like what you're reading here, then go turn on the TV. You'll feel better.

I hate to simplify things too much, but this is the reason Mr. Greenspan called gold the conscience of the central bankers back in the 60's before he lost his mind or whatever happened. Maybe he couldn't resist the power of the ring or something... I don't know. Anyway, it's their conscience because they can't just zap gold into existence with the stroke of a pen.

Guess what? They can zap money into existence now. Poof - you've got money.

Any amount you want. That's why this is fundamentally different from the great depression. This time, they can just increase the giant pile of money. they can just drop it out of helicopters if they have to. They even said so... and it isn't going to buy as much stuff. It doesn't already.

So you still have the same basic problem from a human standpoint. That's the really interesting thing. In other words, whether you have a deflation like in the 30's or an inflation like now, the people suffer similar effects. It's hard to find a job, you can't make ends meet, city and government functions and services are understaffed and underfunded, and you are hungry. They are both a state of decay. Both usually end in war too.

The last one did. This one is different however in a lot of ways... and it's much more serious. It is fundamentally different because it is the end of the world's first experiment in government by the people and it has been replaced by something new.

So if you're into labels, then maybe you can find a label for what to call this. I like to quote Lenin on that:

"Fascism is capitalism in decay." -Vladimir Lenin

So I really don't want to get into all that implies in a short essay, but I will condense it all and say the US is in a state of decay. Political, socioeconomic, leadership, influence, status, any label you can think of.

The US is losing power and influence in the world, and it only has 5% of the world's populationand they're all bankrupt. I like to think of it like a continuum from the US coming out on top after WWII to a banana republic run by El Presidente. That's what I call them now, whoever he or she is, El Presidente because that's what they are. A corporate spokesman who is put there, bought and paid for by Acme corp.

The country has lost its way and is increasingly operating at the whim of the corporate lobbyists and special interests that own the politicians as the stench of it all starts to smell so foul that even the corporate media disinformation campaign can't convince your lying eyes. It is not what it appears to be. It is Rome circa 400's. It has already bankrupted itself policing an unsustainably large global empire................


Wizard 1248March 18, 2008 10:18PM

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Wizard 764March 18, 2008 10:34PM

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Wizard 700March 24, 2008 09:47AM

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