It is impossible to call the exact time that the U.S. dollar will collapse; I would be a fool to try. But I will tell you that I think our fiat monetary system is approaching the end of its lifespan right now. I certainly didn't read the signs which predict hyperinflation until now. The signs that a hyperinflation is coming are detailed here. To qualify this post I will tell you that I am an avid reader, and I have a Masters Degree in administration, and a Bachelors Degree in history with minors in psychology and economics
I believe that a monetary collapse is fast approaching. I have been studying economic history to figure out how the U.S. could possibly have asset deflation when hyperinflation is what I was betting on. It seems counterintuitive that deflation could be occurring (cheaper assets) when liquidity is flooded into the economy from Federal Reserve policy.
The problem with economies is that they are not machines. An economy is not controlled by the monetary policy of governments or central banks. Evidence of this is QE1 and QE2: the liquidity did nothing to free up credit markets. The QE did not work because, fear has taken center stage. People are not buying homes because it is hard to catch a falling knife-they are scared of depreciation and they are not secure in their jobs. Economies are controlled by people within the economy. People spend fiat when they are sure of their job security, and they have faith that the future will be secure. Fiat works well when people are secure. Machines do not have desires, and fears about the future. If the economy were a machine you would only have to give it gas and it would run faster. But when you gas an economy, you can never be sure of the result. In trying to re-inflate the housing market Ben Bernanke has caused inflation in other areas. Bernanke’s sworn enemy is deflation, and he will fall for the deflationary head fake very soon.
What I discovered is that before hyperinflation there is always a period of asset deflation and a fiat currency rally. We are seeing that fiat rally in the U.S. dollar right now. Even gold and silver (both assets) are deflating as people clamor for U.S. dollars and U.S. Treasuries. This is one obvious sign of the impending fiat collapse. What is not disputed is that when people get scared, they raise cash or flee to the next best sure thing: U.S. treasuries. Cash is king: but this is only for a short time.
The Federal Reserve has created money as a back stop to take the moral hazard out of every bad investment for some time. That easy money from the fed is “scared money” trying to find safety. Institutions now find it too risky to loan money to the American consumer. Americans have been losing their jobs and swimming in debts for years. The jobs that left are simply gone-and they are not coming back. These bailed out institutions can’t believe their good fortune and they pay their employees and executives with the easy money from the fed. People who would have lost their jobs when their institutions failed are also bailed out. But, these employees are not certain of the economy so they hang onto their money. They do not buy a bigger house, or a new car, and they spend less. They keep their money in U.S. dollars and treasuries which they believe are certain to be a store of value. The institutions freeze pay, and refuse to hire new employees or invest in job creation.
It is all about the flow of capital. This is how it looks when money flows into the pyramid during credibility inflation. Picture this upside down pyramid as “credibility inflation” which has been occurring for the past forty years. Money flows into those investments which have “credibility”.
Countesy of FOFOA-All fiat currency is a short position on gold.
Notice the bottleneck at the bottom of the pyramid? That is because there are not enough U.S. dollars or gold to supply everyone who will want them. This sounds wrong doesn't it? Well you should know that the U.S. holds 90% of the money supply in reserve. Only about ten percent of the U.S. dollars are actually in circulation. Most of the money supply actually only exists in the form of zeros and decimals in bank computers. When people rush to banks to get their fiat, there will have to be a bank holiday to get fiat to the banks. And after that rush to fiat, when fear chases people out of the dollar there is not enough gold in the world to convert the trillions in fiat which will seek conversion from zero value paper. All of the gold in the world has a value of about 9 trillion dollars. The debt of the U.S. alone is almost twice the value of all gold in the world.
The next chart is the "deflationary head-fake" (Argentina) right before the onset of hyperinflation as the private bank credit money disappears...
So first comes hyperinflation, then, and only then, comes the massive printing as the central bank tries desperately to keep the government functioning. So don't look for massive printing to see hyperinflation coming. Look for the monetization of bad debt (already happened) and the first signs of real price inflation (we are seeing it now in food and health care 10%), even in the face of apparently deflationary forces.
People abandoned gold when they got comfortable with paper. This process took hundreds of years. So now when someone sees a 100 dollar bill on the sidewalk, they actually see GOLD. It has intrinsic value for what it can buy, and what people have been conditioned to believe about the paper. The governments of the world were successful in teaching people to trade paper. Paper holds value. Paper is not gold; but right now it is.
When a person sees a piece of paper with $100 printed on it, they see value. But lately people see that the same $100 loses purchasing power each year. And the government cannot be trusted to mange the supply of paper.
It is the law of supply and demand which dictates: when supply exceeds demand, the price will fall. The oversupply of fiat has already happened. The government sees that spending has not picked up, so they suspect "Deflation". But America is awash in liquidity-it is just that people are hanging on to the fiat as a store of value. Soon people will discover that holding fiat is dangerous-they will buy anything of value-chairs, lamps, backpacks-anything that can hold value; it will all be better than holding paper since the purchased item can be traded later.
Gold is scarce, and it has always been considered to be money. A person can take gold anywhere in the world and it will be weighed-and you will receive what you like. When people realize that they have been fooled into thinking paper was money, they will seek to convert their fiat to the only logical honest money. In every case of currency failure: people turn to gold and silver since it is a store of value. There have been more than three thousand examples of fiat currency in the world, and every single one has ended in failure. No exceptions.
I hope I answered your question.
I believe that a monetary collapse is fast approaching. I have been studying economic history to figure out how the U.S. could possibly have asset deflation when hyperinflation is what I was betting on. It seems counterintuitive that deflation could be occurring (cheaper assets) when liquidity is flooded into the economy from Federal Reserve policy.
The problem with economies is that they are not machines. An economy is not controlled by the monetary policy of governments or central banks. Evidence of this is QE1 and QE2: the liquidity did nothing to free up credit markets. The QE did not work because, fear has taken center stage. People are not buying homes because it is hard to catch a falling knife-they are scared of depreciation and they are not secure in their jobs. Economies are controlled by people within the economy. People spend fiat when they are sure of their job security, and they have faith that the future will be secure. Fiat works well when people are secure. Machines do not have desires, and fears about the future. If the economy were a machine you would only have to give it gas and it would run faster. But when you gas an economy, you can never be sure of the result. In trying to re-inflate the housing market Ben Bernanke has caused inflation in other areas. Bernanke’s sworn enemy is deflation, and he will fall for the deflationary head fake very soon.
What I discovered is that before hyperinflation there is always a period of asset deflation and a fiat currency rally. We are seeing that fiat rally in the U.S. dollar right now. Even gold and silver (both assets) are deflating as people clamor for U.S. dollars and U.S. Treasuries. This is one obvious sign of the impending fiat collapse. What is not disputed is that when people get scared, they raise cash or flee to the next best sure thing: U.S. treasuries. Cash is king: but this is only for a short time.
The Federal Reserve has created money as a back stop to take the moral hazard out of every bad investment for some time. That easy money from the fed is “scared money” trying to find safety. Institutions now find it too risky to loan money to the American consumer. Americans have been losing their jobs and swimming in debts for years. The jobs that left are simply gone-and they are not coming back. These bailed out institutions can’t believe their good fortune and they pay their employees and executives with the easy money from the fed. People who would have lost their jobs when their institutions failed are also bailed out. But, these employees are not certain of the economy so they hang onto their money. They do not buy a bigger house, or a new car, and they spend less. They keep their money in U.S. dollars and treasuries which they believe are certain to be a store of value. The institutions freeze pay, and refuse to hire new employees or invest in job creation.
It is all about the flow of capital. This is how it looks when money flows into the pyramid during credibility inflation. Picture this upside down pyramid as “credibility inflation” which has been occurring for the past forty years. Money flows into those investments which have “credibility”.
Countesy of FOFOA-All fiat currency is a short position on gold.
Notice the bottleneck at the bottom of the pyramid? That is because there are not enough U.S. dollars or gold to supply everyone who will want them. This sounds wrong doesn't it? Well you should know that the U.S. holds 90% of the money supply in reserve. Only about ten percent of the U.S. dollars are actually in circulation. Most of the money supply actually only exists in the form of zeros and decimals in bank computers. When people rush to banks to get their fiat, there will have to be a bank holiday to get fiat to the banks. And after that rush to fiat, when fear chases people out of the dollar there is not enough gold in the world to convert the trillions in fiat which will seek conversion from zero value paper. All of the gold in the world has a value of about 9 trillion dollars. The debt of the U.S. alone is almost twice the value of all gold in the world.
The next chart is the "deflationary head-fake" (Argentina) right before the onset of hyperinflation as the private bank credit money disappears...
So first comes hyperinflation, then, and only then, comes the massive printing as the central bank tries desperately to keep the government functioning. So don't look for massive printing to see hyperinflation coming. Look for the monetization of bad debt (already happened) and the first signs of real price inflation (we are seeing it now in food and health care 10%), even in the face of apparently deflationary forces.
...velocity & money demand.
Jim Powell has pointed out that the tens of millions of people who are still working — and that's 91.5% of the workforce — have received a huge pay raise, because prices of houses, cars, refrigerators and a lot of other things, have been cut drastically. The buying power of their wages has soared!
And, it's the best kind of pay raise, because they didn't need to work any harder to get it, and it's not taxed. This is a huge windfall. It's probably the biggest, most widely shared windfall in all of world history.
So why aren't these tens of millions of people out celebrating? They should be delirious with joy. Why aren't we seeing dancing in the streets? Because people are scared and afraid to spend the money. People are not machines.
And that brings us to what economists call velocity. A major reason is velocity. I think velocity has become the key driver in the entire world-wide economic crisis, so here is a quick explanation of it. Money responds to the law of supply and demand just as everything else does.
If people do not want a particular currency — let's say the British pound — then the value of a pound will fall. Sellers will demand more pounds in trade for their goods or services, and prices in Britain will rise, even if there has been no change in the supply of pounds. On the other hand, if the demand for pounds rises, the value will rise and prices will fall even if there has been no change in the supply of the currency.
Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low. When demand for the money is low, velocity is high.
Further References:
Fiat Paper Money: The History and Evolution of our Currency Raph T. Foster
FOFOA- http://fofoa.blogspot.com/2010/09/just-another-hyperinflation-post-part-2.html
My Blog: http://tacticaldefensellc.com/Blog.html
James Quinn
Peter Schiff
Michael Pento
Jim Powell has pointed out that the tens of millions of people who are still working — and that's 91.5% of the workforce — have received a huge pay raise, because prices of houses, cars, refrigerators and a lot of other things, have been cut drastically. The buying power of their wages has soared!
And, it's the best kind of pay raise, because they didn't need to work any harder to get it, and it's not taxed. This is a huge windfall. It's probably the biggest, most widely shared windfall in all of world history.
So why aren't these tens of millions of people out celebrating? They should be delirious with joy. Why aren't we seeing dancing in the streets? Because people are scared and afraid to spend the money. People are not machines.
And that brings us to what economists call velocity. A major reason is velocity. I think velocity has become the key driver in the entire world-wide economic crisis, so here is a quick explanation of it. Money responds to the law of supply and demand just as everything else does.
If people do not want a particular currency — let's say the British pound — then the value of a pound will fall. Sellers will demand more pounds in trade for their goods or services, and prices in Britain will rise, even if there has been no change in the supply of pounds. On the other hand, if the demand for pounds rises, the value will rise and prices will fall even if there has been no change in the supply of the currency.
Velocity is the speed at which money changes hands. When demand for the money is high, money changes hands more slowly, and velocity is low. When demand for the money is low, velocity is high.
Further References:
Fiat Paper Money: The History and Evolution of our Currency Raph T. Foster
FOFOA- http://fofoa.blogspot.com/2010/09/just-another-hyperinflation-post-part-2.html
My Blog: http://tacticaldefensellc.com/Blog.html
James Quinn
Peter Schiff
Michael Pento
There was a scene in the movie, Saving Private Ryan where an American soldier was shot and dying. His comrades gathered around him and tried to stop the bleeding.
The soldiers try to save the man by pouring sulfa on his gut wound. The wounded man asks for morphine. They quickly give him a shot of morphine. It does nothing for the man and the bleeding intensifies. Quickly the soldiers pour more sulfa on his wound; the bleeding will not stop. Finally one soldier begs the wounded man, “How can we fix you?” The wounded man asks for more morphine. At this point the men all look at each other. They realize another shot of morphine will kill the wounded man. But they understand that he is dead anyway…so they give him the morphine. Better that he dies comfortably.
This is the way I see the American economy. The American economy is the dying soldier in the movie. The morphine is the QE1,2 and eventually 3. The QE will kill the economy, but the economy is going to die anyway. So with nothing to lose, and some temporary comfort to gain, the QE is administered in whatever dose that is necessary to arrest the pain.
The soldiers try to save the man by pouring sulfa on his gut wound. The wounded man asks for morphine. They quickly give him a shot of morphine. It does nothing for the man and the bleeding intensifies. Quickly the soldiers pour more sulfa on his wound; the bleeding will not stop. Finally one soldier begs the wounded man, “How can we fix you?” The wounded man asks for more morphine. At this point the men all look at each other. They realize another shot of morphine will kill the wounded man. But they understand that he is dead anyway…so they give him the morphine. Better that he dies comfortably.
This is the way I see the American economy. The American economy is the dying soldier in the movie. The morphine is the QE1,2 and eventually 3. The QE will kill the economy, but the economy is going to die anyway. So with nothing to lose, and some temporary comfort to gain, the QE is administered in whatever dose that is necessary to arrest the pain.
People abandoned gold when they got comfortable with paper. This process took hundreds of years. So now when someone sees a 100 dollar bill on the sidewalk, they actually see GOLD. It has intrinsic value for what it can buy, and what people have been conditioned to believe about the paper. The governments of the world were successful in teaching people to trade paper. Paper holds value. Paper is not gold; but right now it is.
When a person sees a piece of paper with $100 printed on it, they see value. But lately people see that the same $100 loses purchasing power each year. And the government cannot be trusted to mange the supply of paper.
It is the law of supply and demand which dictates: when supply exceeds demand, the price will fall. The oversupply of fiat has already happened. The government sees that spending has not picked up, so they suspect "Deflation". But America is awash in liquidity-it is just that people are hanging on to the fiat as a store of value. Soon people will discover that holding fiat is dangerous-they will buy anything of value-chairs, lamps, backpacks-anything that can hold value; it will all be better than holding paper since the purchased item can be traded later.
Gold is scarce, and it has always been considered to be money. A person can take gold anywhere in the world and it will be weighed-and you will receive what you like. When people realize that they have been fooled into thinking paper was money, they will seek to convert their fiat to the only logical honest money. In every case of currency failure: people turn to gold and silver since it is a store of value. There have been more than three thousand examples of fiat currency in the world, and every single one has ended in failure. No exceptions.
I hope I answered your question.
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