Inflation or Deflation?

http://finance.yahoo.com/news/Greece-gets-new-bailout-with-apf-1229167797.html?x=0&sec=topStories&pos=4&asset=&ccode=

This both includes more stimulus and avoiding lowering Greece wages to make them competitive, thus making the problem worse long-term while adding stimulus short-term, while also setting off a short-term contagion in terms of the selective default (the bonds holders are taking a loss). Perhaps they will allow banks to not mark-to-market these losses thus delaying the contagion effect? But there is also the contagion effect that now the bond vigillantes know that selective default is where it ends up for all the PIIGS and the brave ones are going to start betting against the eurozone. Eventually the entire eurozone will fail because of their guarantees of the PIIGS debt which they had resisted but now have begun.

Lindsey Williams timeline is exactly being fulfilled. The entire eurozone will fail later, perhaps in 2012 since these effects are accelerating.

Besides the BKX bearish H&S and the correlation to period between QE1 and QE2 (which I showed in a prior post), what other evidence of economic slowdown?

If you watch several of these interviews on Yahoo Finance, it seems there is a lot of expectation for a pickup in GDP growth in the 2nd half of the year:

http://finance.yahoo.com/blogs/breakout/wall-street-washington-us-clarity-please-125325914.html;_ylt=AjabAuw8.ySOwVBA79I6Y9O7YWsA;_ylu=X3oDMTE2bXE5cDY1BHBvcwMxMgRzZWMDdG9wU3RvcmllcwRzbGsDd2FsbHN0cmVldHRv?sec=topStories&pos=7&asset=&ccode=

The consistent theme is that pickup from improvement of Japan supply chain. However, I never thought Japan crisis would be much of a factor, and the reason is because we don't have a supply-side problem, we have a demand-side problem. The July business survey seems to confirm my hypothesis:

http://market-ticker.org/akcs-www?post=190431 (zoom the chart for the survey)

The survey compares change since June. Notice that although there was an improvement in new orders from -7% to 0%, that is still not growth, and the increase in shipped orders were taken out of unfilled orders, while inventories grew. Employment weakened. So flat growth is all we got out of that May 2011 reduction in the commodities prices (lower prices for consumers), with demand insufficient to maintain the queue of unfilled orders nor draw down of inventories. And now commodity prices are rising again as China's tightening is winding down.

And why didn't we get more demand? Because the consumer is so tapped out that they are now maxing out their credit cards:

http://market-ticker.org/akcs-www?post=190500

Because they are losing jobs and wages are not rising while inflation does:

http://market-ticker.org/akcs-www?post=190430

Smoke and mirrors or for real? (we will soon find out)

http://market-ticker.org/akcs-www?post=190618

Are political leaders trying to create a new form of elite congress in order to eliminate the power of the tea party?

The so called "deficit reduction" may have been a lie:

http://market-ticker.org/akcs-www?post=190577

It is indeed a lie that we would default if the Aug. 2 deadline passes:

http://market-ticker.org/akcs-www?post=190590

In fact, if the marginal utility of debt is now negative, then reducing debt spending will actually have no material effect on _real_ GDP, other than short-term gyrations. The nominal GDP would drop, but so would inflation. Markets might even (eventually) go up, if the debt reduction was done in a way that had long-term expectations of reduced government regulation, lower inflation, etc.. However, the negative impacts in the markets would be due to uncertainty created from a deadlocked Congress, and from the initial absorption of the nominal reduction in (probably global) GDP.

================ email to Karl Denninger ========================
Subject: Karl I applaud your recent blogs at market-ticker.org

In fact, if the marginal utility of debt is now negative, then reducing debt spending will actually have no material effect on _real_ GDP, other than short-term gyrations. The nominal GDP would drop, but so would inflation. Markets might even (eventually) go up, if the debt reduction was done in a way that had long-term expectations of reduced government regulation, lower inflation, etc.. However, the negative impacts in the markets would be due to uncertainty created from a deadlocked Congress, and from the initial absorption of the nominal reduction in (probably global) GDP.

I am pro-growth. I am for the 7 year jubilee. I think we agree on more than you may realize. I would like to see a world where there are no borders but not for a big govt along with it, i.e. I agree with you that an immigrant shouldn't be allowed to force us to pay taxes for her welfare. I want a world where Americans are just as free to live and invest any where in the world, whereas currently they are not allowed to. Mexico for example discriminates against us, and Asia is even worse.

On the issue of the gold standard, I am not for it. I am for the state not having a monopoly on the issuance of money, because where ever there is a monopoly, the crooks will always gather and gain control. ALWAYS. This is the main area where you and I disagree. You think that a representative form of govt can print a paper legal tender. NO! THAT IS EXACTLY WHAT ROTHSCHILD WANTS. We need the 1000s of private banks issuing money (backed by what ever their patrons demand). Yeah I know the history of banking and this lead to where we are now. What I want you to note is that during the 1800s, depressions were more closely spaced and over with quickly. This was a self-correcting system. Unlike what we have in 1900s under a central authority is a runaway system that never corrects.

The big picture solution is that we have technology that didn't exist in the 1800s. And the more we can get people involved in the knowledge business, then the system can just route around (Coase's Theorem) these attempts at centralization. And I am putting my effort on exactly that:

http://copute.com

Oh I forgot about this chart!

But notice the drops except those since Q3 2008, the deflationary move was gold moving up faster than the stock market, not a crash in either. Looks like we are currently in that short sideways move in 2007 (see the black dot), before another big fall. This is sort of what I expect, a massive acceleration of inflation in 2012 with gold rising faster than the DOW, then fall of the cliff in 2013 as we did in 2008 (because the global economy will be suffocated by the inflation in 2012).

Here it is logarithmic, and it shows a waterfall as should be expected:

http://www.24hgold.com/english/contributor.aspx?article=3550127176G10020



Here it is non-logarithmic (which I don't consider to be correct way to plot charts, so the breakout of the red line is not an accurate timing indicator):

http://www.gold-eagle.com/editorials_08/weytjens072311.html



Note in the short-term, we could still get another rise up to the blue line (30 month or 120 week moving average), meaning correction to silver:



=============
ADD: summary of my outlook

Before 2013, gold rising faster than DOW. After 2013, another global contagion, with DOW falling or stagnant, but gold may rise or not fall as much 2008 (gold doing exceptionally better than DOW in any case).

My near-term point is we have room in that chart short-term for another pullback in silver.

In 2012, the chart must start moving down significantly, and I expect that to coincide with virulent, resurgent, brutal inflation from EU stimulus and QE3 and the knockon effects of the prior stimulii that has the marginal utility of debt negative, i.e. approaching saturation globally and any increase in debt like pouring fire on inflation, so I expect gold to increase faster than the Dow increases and I want to hold silver during this period.

But by roughly 2013, I expect the global economy to fall apart from this inflation, so then I expect more of a 2008 style crash, except the dynamics may be more tilted towards riots, war, and sovereign defaults, so gold may even go up if Dow goes down. This is why I would probably sell some silver for gold towards the peak of the 2012 inflation insanity. Then of course buy back into silver again after say a 25 - 50% rise in the gold/silver ratio.

Perhaps the tea party can block the debt limit rise (they had 90 signers on the cap & cut recently):

http://www.bloomberg.com/news/2011-07-28/house-debt-limit-vote-sets-stage-for-showdown-on-u-s-default.html

The dynamics are more complex than I have time to summarize.

OTOH, the Boehmer plan actually doesn't have any cuts, it is all a lie:

http://market-ticker.org/akcs-www?post=190833

So one would think the democrats will eventually agree to this, if Boehmer can get the tea party to vote for it.

It looks like a trick. Democrats are pretending to be against this, this is so Boehmer can trick the tea party into voting yes. Then after that, they will make some insignificant change, and the Dems will suddenly announce they will accept the plan.

This is all a trick to keep from cutting anything. Boehmer works for the banksters.

Somebody needs to get the word out!! If the tea party will just say "no", then we can perhaps avoid this coffin corner effect coming, where you can't cut the spending any more because then the taxes won't be enough to pay the debt payments:

http://market-ticker.org/akcs-www?post=190845

Go here for epicenter of Tea Party:

http://www.rushlimbaugh.com

Specifically you must read this:

http://www.rushlimbaugh.com/home/daily/site_072711/content/01125113.guest.html

An alternative title for this is "Silver better than gold in every scenario (even if debt ceiling not raised)".

If you would like to send someone a copy of this article, here is a link that does not require a password, just right-click that link and choose "Copy link", then paste it into an email. Google reports that Jason's article is getting attention from other bloggers.

Recently Jason Hommel of the SilverStockReport.com, wrote a very clairvoyant qualitative explanation of why adding more debt and government spending, actually decreases the real GDP. He explained that it would be better to reduce the debt and government spending, as the real GDP would then rise. This is opposite of what most people think would happen, and opposite the fear propaganda being spread in the mass media, but it is a mathematical fact when the marginal-utility-of-debt is negative, then adding more debt actually decreases the real GDP, and thus conversely that reducing debt will increase real GDP. Of course the nominal GDP would decrease (or increase more slowly), so that some people whose income depends on government spending, would see their incomes decline (as deflation would spread into the economy), but the real GDP would actually increase, which means people in productive business would see their fortunes increase and those holding gold would see their fortunes decrease (this will be explained quantitatively).

Hommel also explained that it was possible for the government to spend without borrowing the money by printing the money out-of-thin-air, and at the end of this, I will explain the differences of that versus borrowing the money from "investors" (ahem, I will show the source of money is printed out-of-thin-air by the banks).

First, I think is important to show a quantitative explanation and proof that negative marginal-utility-of-debt is a fact, so that people can put proof behind their qualitative understanding and personal anecdotal experience. At the end, I will show the quantitative differences if we continue to add government spending (with or without adding more debt).

Quantitative Proof

The word "marginal" (debt) means the "added" (debt). When this is negative, it means that adding more debt, is causing the real GDP to decrease, instead of increase. The nominal GDP is increasing (the economic activity measured in current prices), but when you subtract cost-of-living increases (inflation in prices), then the real GDP is decreasing. This means on average, most people are seeing their standard-of-living-decline. Although wages might be increasing slightly or stagnant, the prices are increasing faster.

Also realize the charts that follow are using the governments calculation of CPI (inflation of prices), which has been argued to be vastly understated. Thus the charts below would show a much more drastically negative marginal-utility-of-debt, if the CPI used was reported by the government to be higher. The government reported CPI may be correct, as viewed from the perspective of someone who spends most of their income on housing (as this is declining in price), computers (as these are also declining in price), and imported goods where labor was formerly a big component of their cost (but these prices will start to increase as developing world wages are increasing now). But for people who spend most of their income on education, food, and energy (fuel, electricity, transportation), then the government reported CPI is vastly understating the increase in prices they are paying. Also there is a global factor to this, where inflation is lower for westerners who spend most of their income on deflating houses, versus the other 7 billion people who spend most of their income on food, energy, and education, and who have rising housing costs. The profligate government spending in the west, is exporting this inflation to the developing world.

It is very important when viewing the following chart that you don't get hopeful about the bounce upward in the blue line that may or may not have occurred since 2010, because you must note that the line is still below 0% (it will be if I can find an updated chart), and thus the economy is still shrinking (i.e. in a Great Depression since it has been sustained below 0% for 3 years).

One simplest way to plot the marginal-utility-of-debt is a chart that shows for each $dollar or debt added, how many $dollars of real GDP is increased or decreased. It has been steadily decreasing towards $0, then it fell off a cliff in 2008 to negative and hasn't recovered to positive. Here is that chart:



However, the above chart may not satisfy some people, because it may not be intuitive as to how the chart was calculated, and it doesn't show the absolute level of the real GDP, so we can not see if we are in a Great Depression.

It is very important when viewing the following chart that you don't get hopeful about the bounce upward in the red line for real GDP, because you must note that the line is still below 0%, and thus the economy is still shrinking (i.e. in a Great Depression since it has been sustained below 0% for 3 years).

Another way of visualizing marginal-utility-of-debt, is to plot a chart (with all lines expressed as as percentage change of that metric compared to the prior year, i.e. year-over-year "Y/O/Y"), with a green line for the nominal GDP, a blue line for debt as percentage of GDP, and a red line for real GDP. If the red line is equal to the green line minus the blue line, then it means all increases in debt are reflected as equivalent increase in CPI. If that the blue line is increasing faster than the red line is, there is a negative marginal-utility-of-debt. If the red line is below 0%, we are in recession. If the red line is below 0% for more than 6 months, then we are in a depression. If the red line is well below 0% and for years, then we are in a Great Depression.

However, I don't have such a chart. But there is a chart of real GDP, which you can correlate to the following chart. It confirms that we have continuing negative marginal-utility-of-debt (since 2009 charts show maximum real GDP rise of 5 - 7% and following chart shows public federal government debt rise of 7%), but if you believe the government's CPI then we are not in Great Depression, but if you believe SGS's computation, then we are.

Instead, if we assume that all increases in federal government debt are reflected as equivalent increase in CPI, then we plot the red line as the green line minus the blue line, then we get the following chart (and the article for the chart). Note this chart is assuming the CPI reported from the government is a lie. It is possible the assumption may be wrong, and that some of the government spending is not going into prices, but rather into paying down private debt (i.e. savings), and/or exported to the developing world where the inflation is much higher. But what this chart does show is that marginal-utility-of-debt for nominal GDP is negative, and nominal GDP is where government gets its taxes. So from the standpoint of the fiscal sustainability of the government's borrowing, the following chart is an appropriate assumption.



Govenment Deficit Spending With or Without Debt

Again do not get fooled by a rising nominal GDP, because it is nearly meaningless, because the increase or continuation of your income is meaningless, unless you also factor in the change in prices. Caveat: for those people whose income would be lost entirely, by a decline (or slow down in increase) in nominal GDP that a reduction in government spending would entail, they can argue that nominal GDP is important, except that eventually the declining real GDP will force the outcome any way (i.e. a default by the federal government). Overall for most people (and eventually for all, because kicking the can down the road only works for so long), real GDP measures the direction of the future.

So the charts above proved that increasing the federal government debt is decreasing the real GDP. Increasing federal government debt is the same as saying increase deficit spending (spending more than tax receipts)-- note I will explain later the option of increasing government spending by printing the deficit out-of-thin-air as Hommel proposed. What is important is we first recognize that increased government deficit spending is correlated to reduced real GDP. Thus Hommel's qualitative points about government spending being wasteful and harmful, are proven quantitatively.

If the federal government were to stop deficit spending, which either means a drastic reduction in spending or a large increase in taxes, then the real GDP would increase. That is a fact, proven by the quantitative charts. Note that increasing the tax rates, will also decrease the government spending, because the nominal GDP will decline when taxes are increased. Thus increasing tax rates is the same as decreasing government spending, if the government is committed to a balanced budget. The difference between raising taxes and decreasing spending, is that all throughout history, the government raises taxes, but never lowers the spending, thus the deficit spending never declines. So the tax rates rise versus spending decrease debt, is really about whether the government is serious about reducing spending. That is why the Tea Party republicans are correct, that cutting spending to a balanced budget is the only sane and credible action.

So we know quantitatively that if the government were to do the correct thing and decrease spending to a balanced budget, the real GDP would rise and overall the economy would be more prosperous. Most people would be able to increase their standard-of-living, even though the nominal GDP would decline (or the increase would slow down), prices would decline much faster (or increase much slower). Qualitatively, those wasteful activities from government spending (which are causing the real GDP to decline), would be eliminated, and thus there would be many people without wasteful jobs, looking for productive jobs. Thus businesses would prosper because they would find more opportunities to hire at affordable wages and eager employees.

Quantitatively if the government were to eliminate its borrowing via a balanced budget, then interest rates would decline. Since gold pays no interest, it rises in price when the interest rates are less than the rise in prices (which has been the case lately). So if prices were to drop in price, then since interest rates can not become negative, then gold would fall in price. So it would then be more profitable to hold (corporate, if government stops borrowing) bonds than gold. So we can say quantitatively that productive people would become more prosperous and lazy people and passive investors would become less profitable. Note holding a corporate bond is much more like investing than holding a government bond, because it is more free market (has more degrees-of-freedom), as individual corporations can fail and bond holders can lose, while other corporations and bond holders can prosper. However, a usurious bond is never as free market as capital ownership which can be bought and sold, because usury is a long-term futures contract that has less degrees-of-freedom.

Note silver is a different story, because the 7/8ths of the world's population uses 1/10 per capita of the silver that the other 1/8 does (because silver is used in high-tech and high-end products that middle class economies can afford), thus as the developing world becomes more prosperous (which will be even more the case if the indebted western countries become more prosperous), then demand for silver could increase 70 times (7000%) over next decade or so. Silver has a positive outcome no matter which path the governments take, even world war would drive the demand for silver.

If the federal government instead printed the money out-of-thin-air to fund deficit spending, then the real GDP would continue to decline, because assuming the government just kept spending constant, the wasteful activities would still continue. Realize that the current level of spending far exceeds tax receipts, so a constant level of spending is still deficit spending. The supply of money would increase and prices would go up, while the nominal GDP would not increase. Thus we can say quantitatively (mathematically) that real GDP would continue to decline.

When the government borrows money from "investors", this money was also printed out-of-thin-air by the banks, given the fractional reserve system of making loans that are greater than the money they have on deposit. So the difference is that the government is making interest payments to the banks for nothing. The banks get to create money and loan it and parasite on the economy. So although deficit spending is bad in either case (because wasteful government activities consume resources that private sector would allocate more efficiently), it would be much better for the government to print its own money for deficit spending, than to borrow it from banks.

The debt ceiling deal cuts no spending. It is way of saying "$2.1 trillion in reduced deficits" which really means they are counting that the Bush tax cuts expire in 2012, generating an expected $2.1 trillion in tax revenue (mostly from the lower tax brackets!). Now that the debt ceiling is raised until 2013, the tea party can obtain no cuts until 2013, because there isn't veto override power and Obama will veto any cuts. It is worth listening to Karl Denninger's layman explanation on this.

The $2.1 trillion in revenue will get sucked right out of nominal GDP, so overall tax revenues won't rise, the tax rates will rise, but the tax revenue will be the same (i.e. the GDP will fall by $2.1 trillion), and thus there are not cuts. It is just a restructing of wealth from the middle class to the very rich. The reason the tax revenues can't rise is because it is has been proven that tax policy can not generate new business (i.e. GDP), unless it involves tax cuts. Historically over the decades, the percentage of tax revenues in the GDP has remained constant, even as the tax rates change.

Per my prior post in this thread, the marginal-utility-of-debt is now NEGATIVE, meaning additional debt and deficit spending REDUCES real GDP, i.e. a form of de-stimulus. The more they spend, the faster they will destroy the real GDP. This will take the form of accelerating inflation and defaults-- severe stagflation, i.e. great depression combined with inflation as the developed world defaults and the developing world inflates, a/k/a Collapsflation. I predicted this Inflating Deflation, back in early 2006.

Shelby Moore III wrote in 2006:

First world economies face an unavoidable dilemma, regardless whether globalization is switched on or off, either sacrifice now with decades of retirement demographic deflation (globalization off), or sacrifice later by inflating the deflation of globalization for temporary illusionary "wealth", which will end in a hyper-catastrophic global collapse Greater depression.

World politics have chosen "sacrific later", and on the order of 30 - 50% of the capital in developing markets derived from globalization, as well as the matching consumption debt in first world, is "unproductive" and due to be wiped out.

Contrarian investors can drastically increase their wealth betting on hyper-inflation of commodoties and precious metals.

The collapse is accelerating. The tea party is now irrelevant. TPTB have won with certainty, barring some technological paradigm shift.

Also Ron Paul is claiming that the debt ceiling raise law contains provisions for a "Super Congress" which will ram through future tax increases and deficit limit raises, thus centralizing power and further removing the representation of frustrated Americans:

http://www.infowars.com/ron-paul-sounds-alarm-on-disturbing-super-congress/

Alex Jones gives his conspiracy theory perspective on this (I am not saying I agree with all of his points, but worth listening to):

https://www.youtube.com/watch?v=NO9JJ7X25Eg (describes the details of how the "Super Congress" can overrule congress to make law)
https://www.youtube.com/watch?v=Kj1uZlV2t9A
http://www.infowars.com/lyndon-larouche-obama-to-become-fuhrer-after-debt-ceiling-vote/ (1st video details the new law, 2nd video says collapse is immediate, 4th video near the end explains that deadlock is caused by people who think they have money in their investments, stocks, etc, but the will lose everything because that value does not exist)
https://www.youtube.com/watch?v=bPJrlxuGdPw
http://www.infowars.com/infowars-special-report-super-congress-paves-super-highway-to-gun-control/
http://www.infowars.com/government-mandates-free-birth-control/ (destroy the birth-rate, then demographics and economics collapses, video shows that western ladies use birth control from teenage forward, which leads to adverse physical and mental health later)

Regarding LaRouche's claims TPTB wants to cull the human population to 1 billion, my conspiracy theory (again this is just a theory and that is not to say I believe it), I had a couple of years ago figured out that the reason they needed to kill all 6 billion people, is because silver would go to the moon if they did not (because the developing world only uses 1/10 of the silver per capita as the developed world).

Since the public holds massive quantities of silverware, it would recapitalize the masses if silver was allowed to rise so incredibly. Imagine 70 times the current demand of silver.

TPTB have to marginalize silver, because it is the money of the masses.

Disclaimer: I am not spreading any hate against any one nor inciting any unrest nor illegal activity. I am pointing out that some people have opinions about what recently happened, but they are not necessarily my opinions.


========================
FROM EMAIL
========================
No can't you see that is a diversionary tactic planted by the infiltrators.

The last line in the sand was the debt ceiling vote. This email is just talk that can never be brought to a vote.

The tea party has been effectively destroyed. Game over. Move to next stage, which is riots and guerrilla warfare from frustrated americans who have no representation. Exactly what the TPTB want so they can move to the "body cavity" searches (announced recently by the TSA) and "show me your papers" stage.

TPTB have calculated that those who suck on the tit of socialism in the USA are sufficient in number to demand that the "terrorists" be controlled. They appear to have calculated correctly.

>
> After I sent you the last reply I opened this TeaParty newsletter which
> confirms that they are still focusing on the bigger picture.


> A one-time limited GAO audit of the Federal Reserve that was mandated by
> the Dodd-Frank Wall Street Reform and Consumer Protection Act has
> uncovered some eye-popping corruption at the Fed and the mainstream media
> is barely even covering it.
>
> It turns out that the Federal Reserve made $16.1 trillion in secret loans
> to their bankster friends during the financial crisis.
>
> These loans only went to the "too big to fail" banks and to foreign
> financial institutions. Not a penny of these loans went to small banks or
> to ordinary Americans. Not only did the banksters get trillions in nearly
> interest-free loans, but the Fed actually paid them over 600 million
> dollars to help run the emergency lending program. The GAO investigation
> revealed some absolutely stunning conflicts of interest, and yet the
> mainstream media does not even seem interested. Solid evidence of the
> looting of America has been put right in front of us, and yet hardly
> anyone wants to talk about it.
>
> The Tea Party Needs Your Help To Stop The Obama Regime

Sent to: grossdaniel11@yahoo.com

Tax revenue can't be raised with rates when marginal-utility-of-debt is negative. You only have one choice, which is lower spending. Any tax rate hikes will chomp on GDP, because debt is, so revenues decline. In short, the more they spend, the more the _real_ GDP is declining, unless you believe the liar CPI stats.

And you claim to be an economist. Geez. You will be just like the economists who study the Great Depression and still never understood economics in the slightest. We need to throw all you fools to your destiny by standing back with our gold and laughing.

Ref: http://finance.yahoo.com/blogs/daniel-gross/u-credit-rating-victim-gop-sabotage-021622372.html

In case you don't believe the marginal-utility-of-debt is negative:

https://goldwetrust.forumotion.com/t9p540-inflation-or-deflation#4484

http://www.google.com/search?q=Operation+Twist

What this means is that the Fed (US central bank) will let short-term credit, e.g. credit cards and consumer credit, interest rates rise. And it will try to put a floor or a bounce in housing (to keep the housing bubble pumped up), and then the Feds (US govt) can borrow as much money as they can agree to spend on bailing out the dying consumer.

This is of course massively monetarily inflationary (to nominal GDP), and at the same time massively deflationary to REAL production, i.e. real GDP.

This is going to fail when the price of things is higher than the Feds can subsidize the consumer to afford. The Feds can't directly print money, i.e. money has to be either loaned into existence from banks, or the Fed has to borrow it from the Fed (via long bonds) and spend it into the economy. So hyper-inflation will rather difficult to sustain, plus it would require that the dollar be dumped as the world currency, because for as long as the other currencies (e.g. Yuan) are semi-pegged to the dollar by money printing of the world's central banks, then any hyperinflation in the dollar would mean the entire world would have to hyperinflate. But we can see with the riots all over, that it is nearly impossible to hyperinflate the entire world, because the people will simply quit producing and strike. I think it would incredibly difficult, instead some countries would have revolutions and stop pegging their currencies to the dollar as their people would demand survival. Understand that in the developing world, the people don't have so much debt, so they don't have any need for inflation, unlike here in the west where inflation is acceptable to debtors for as long as the Feds subsidize them and inflation is acceptable to the wealthy that invest in gold and silver. In the developing world, there is no political base to continue inflation beyond the point where the people can no longer buy food and pay their bills.

I think what is going to happen is we will see massive inflation into 2012 (on the order of $200+ gas, $3000 gold, $75 silver). Then in 2013, China will hit the wall as I described above, where the people can no longer buy food and pay their bills (they have some pockets of this already and it will spread). Middle East has hit the wall (they have no production, so inflation hits their people very hard), so Middle East will go into revolution in 2012 and stop producing oil (because the people aren't getting these profits, so they will fight over it).

When China hits the wall, it means they have no choice, they have to stop tying their currency to the dollar. So they will finally have to eat the loss of exports to the west, and eat the popping of their real estate bubble. But they can finance this internally, because they have huge savings, so we will see China have a bad crash, but it will not be the end of China's growth, as it will return with a stronger base later. For some year or years, China will go through a very bad crash and readjustment, as millions of factory workers will lose their jobs. The alternative is China can try to keep pumping up their bubbles and stay hitched to the dollar longer and basically shoot millions of people, but eventually they be forced to quit because too many of their population won't be able to afford to eat and pay rent. I think that wall is probably 2013, because of the massive inflation wave coming in 2012 and the fact that China is already showing signs of being near that wall. I could be wrong and China could somehow avoid the wall for a few more years. I doubt it. Chanos doubts it.

So at some point the dollar comes unhitched, and at the point the Euro and dollar go into hyperinflation, except that the governments of EU and USA don't really have an effective way to increase money in circulation at exponential rates, because I explained early the money has to be borrowed into existence and the political battles over increasing spending. However, at that the point the dollar becomes illiquid internationally, then wealthy people will wantt to get rid of dollars, so the dollars will return home and that is hyperinflationary. So I think the governments of EU and USA will be forced to prevent the sale of dollar bonds, to prevent hyperinflation. So we will see capital controls towards end of 2012 or in 2013. Since the government won't be able to increase spending fast enough, they will resort to a command economy, i.e. price controls and rationing.

So we are not going to see hyperinflation, rather we will see severe inflation coupled with rationing and capital controls. In terms of exchange value the dollar will plummet (when China is internally forced to unpeg from the dollar), so in that respect it will be hyperinflation, but the government will prevent the prices from reflecting the market exchange value of the dollar via both price and capital controls.

So what this means is that gold is going to skyrocket once the massive inflation of 2012 causes China to become unglued, silver will take hit because loss of industrial demand due to the pullback of China and rationing in the west.

This situation will persist until they reconstitute the dollar and Euro to gold and disenfranchise all the citizenry (force default on them), which will also surely take the form of stealing from all the millionaires they can.

Once the currencies are reconstituted, perhaps with regional currency unions or other form of movement towards world currency unification, then the developing world will become a solid base of growth and the west will bottom. Then silver will be the best investment, as the 7 billion in the developing world have to catch up on their per capita consumption to the west. Silver being an early indicator of the future, will likely bottom and start moving up again early.

The unknowns are to what degree does this transition involve war an/or depopulation. Typically business is detached from these matters. In other words, TPTB just see those as part of the ongoing business progression. So unless they plan world war at this stage, then we are likely to see a quick transition to the new world order. I don't think they want world war, because they do not have enough credit and ownership in the developing world. Right now the developing world is owned by the Taipans and leaders in those nations who have raped their own people. TPTB wants to go put consumer credit the developing world so it can take the whole pie, as it is doing in the west now. So I don't think TPTB will go for the massive depopulation event now at this juncture. I think rather they will use only the necessary violence in the USA to maximize the amount of the USA economy they can own. So they will push it as far as they are still making gains, then they will reconstitute the dollar.

It seems to me they will be constrained in the USA by how much the people will accept. If the people roll over and accept Nazi Germany, then they will get it. But I can clearly see the USA citizenry is not going to allow that. There is going to be some level of violence, we just have to wait and see where the wall is that TPTB can not overcome in terms of efficiency. Efficiency is where their efforts become counter-productive, in that the losses from more people are joining resistance becomes greater than the continued profits from theft of the rest of the compliant citizenry (the good sheep with their behinds raised up at all times for rear entry).

I am also calling for a peak sometime in late 2012 or early 2013:

https://goldwetrust.forumotion.com/t9p540-inflation-or-deflation#4506 (the prior post in this thread)

Thanks for the additional correlating factors. Also note that the Fed was created by a law in 1913 for 99 years, so their expiry is coming. I think TPTB will move us to a new dollar and Euro at that time.

> https://goldwetrust.forumotion.com/t44p75-what-is-money#4505
>
> I'd like to propose
> something extra which is that I remember the Y2K bug (which never
> materialised) with lead to the Snp500 peaking in Jan 2000.
>
> With the Mayan predictions possible that this peak is in Jan 2013?
> Coincides with the Facebook IPO and reelection of Obama.
>
> Only thing that makes me think otherwise is Glencore's IPO. Bit early
> don't you think?

Silver is likely to get a boost today after Fed announcement.

http://www.marketwatch.com/story/qe3-expect-at-most-qe-21-at-fed-meeting-2011-08-08

Fed is likely to move closer in language to the QE3 that I explained.

I don't think they will come out and promise to buy the long bond and hold it below a certain percentage interest rate, but I think they will provide language which indicates that they are prepared to do so, if it becomes necessary.

This should hopefully get silver to catch up with gold to around $44+, so then we can take profits before the economy rolls over and the Fed is actually forced to start the QE3 action of buying long bonds.

The alternative perspective is that there is really no stimulus until the Congress acts to increase spending, because the Fed buying the long bond doesn't actually inject any money into the economy until someone borrows more (due to the lower long term interest rates that the Fed would create). But I suppose that unemployment and food stamp benefits automatically increase as people apply for them? So all the Fed is doing is making a guarantee that the federal government can borrow long-term at lower rates. Hmmm, that might reassure the market that the USA is in no danger of default any time soon. Inflation depends on how much the federal government spends (how large he deficits are). Like I said, unless the Fed starts buying other things directly in the economy, then hyperinflation is difficult, because someone has to borrow the new money into existence.

=====================================
=====================================
=====================================

I do think the Fed will act today, because the stock market is down another 5% today. The S&P downgrade was well timed with the Tuesday Fed meeting.

One problem is gold might take a hit, which might drag silver down. But if the Fed's language is sufficiently inflationary, gold might stabilize and silver catch up.

The Fed can't keep both the bond and stock market up.

It is looking like near to an end game, where you want to be in gold and not commodities and silver, but somehow I think they will find a way to inflate one more time.

Thus I think you need to be a buyer where there is blood in streets, I would be tempted to buy oil futures here. The question is will the Fed be too cautious and this selloff will get no bounce? That can be. I am wishing I sold silver on the bounce to $42, except I didn't because I don't know when the Fed will get inflationary again. It could happen today. You guess is as good as mine.

I can just say with confidence that silver will go to $65 - $100 by sometime in 2012 as they will be forced to inflate.

See my prior post too about Peter Schiff and gold.

China is making work and lining the pockets of corrupt local officials, by taking on debt on projects with no cash flow that sit empty. They will hit the inflation wall eventually (when resources are wasted, it causes prices of resources to rise above wages), I think probably 2013:

http://www.bloomberg.com/video/72429864/

http://www.charlierose.com/view/interview/11845

This could have gone in the Inflation vs. Deflation thread.  He explains his politics, and he also explains his economic outlook.

He thinks the chance of double-dip is negligible, except if:

1. EU contagion spreads to USA.
2. USA public loses confidence in the govt.

He doesn't seem to think that running a deficit that is 10% of GDP could be making the economy worse (negative marginal-utility-of-debt).  He sees that his businesses are expanding, except for those in the housing sector and he thinks we are working off the excess inventory with new household formation.

I think he is missing a key point.  For a significant percentage of Americans, their skills are not competitive in global marketplace unless we lower their wages. I think that is why he sees housing construction starts as a key metric, because that industry can employ many of these low skilled people.

And here is the big point Buffet is missing:

http://grandfather-economic-report.com/state_local.htm#spending



And that doesn't include regulatory compliance (which is increasing radically now under Obama), and the mandatory health care system which is not really private.  I would suppose the above chart also doesn't include Fannie and Freddie, which are pseudo-government agencies (feds backstop them), and now the government owns General Motors too, I wonder if that is in the above chart?  And then the Fed seems to own another $1 trillion or so of the country's businesses on its balance sheet. And then there is the actuarial size of the government (which is off the charts), which is what is being accrued based on future promises.  You see we pay for all these things through the depreciation of the currency.

(in private email with M.W.Hodges, it appears that rough estimates of total government spending and mandates might be 67 - 75+% of national income)

email wrote:Hello Michael,

Thank you so much for the reply.

1. Most of the posts on goldwetrust.forumotion.com are mine. I used to own
GoldWeTrust.com (but no more). I have written extensively on numerous
financial sites, and jot down my developing thoughts there at that
informal forum. I am mainly a software programmer (and little bit of a
mathematician and self-taught economist). I am currently working on a
decentralization solution from the technical side (a radically new
computer language named Copute.com). I've pretty much given up on
educating people, because even those who say they want to end the current
problem (i.e. Ron Paul supporters), want to do it from the center. This
means they don't really want to decentralize (they are playing right into
the status quo and eventual NWO), they want the leaders to do it for them.
You may disagree with me. Or you may prefer a purely data-centric
exposition and I am in support of your effort in that regard.

2. Agreed % of national income is a more meaningful relative measure. I
had visited your site many times over the years (before you got your own
domain), and just recently read that you knew Dr. Milton Friedman.

3. If I come across any useful data that I think you might not have, I
will email it to you.

4. So just guesstimating, as of 2010 government spending could be roughly
67% of national income, and that is not including mandated spending of
Obamacare, the Fed's ownership of income producing assets (i.e. the
spending is going into the Fed), the accrual accounting of long-term
entitlement spending, and probably doesn't include government
nationalization (ownership) of most real estate via Freddie&Fannie,
General Motors, etc..

So to put it bluntly, the government is probably responsible for more then
3/4 (75%) of the economy.

I think your 50% chart does not make the point strong enough, and the
correlation of that probability is spread out across too many pages, and
people may not interpret how close we are to the fascist tipping point
where we are so close to government being 100% of the economy, that the
system eats itself. Typically what happens is the society will use
eugenics (rationing, etc) as it tries to rid itself of its fat, e.g.
Hilter's Germany believe it or not, was really about the Utopian health
care system and the desire to purge the "misfits" ("who were causing all
the economic problems"). This delusion creeps in when the government
reaches too large of a share of the economy (and no one wants to blame
themselves, i.e. fuzzy centralized "solutions", e.g. Ron Paul). The only
solution is for the individuals to come out of the system and
decentralize. There is no longer any way to fix the system from the
center. It is a mathematical fact of entropy and thermodynamics.

> Hello Shelby,
> Thanks for writing. You are to be complimented on your thrust.
> I viewed your URL you sent containing one of my graphics, and read most of
> the comments of others RE Buffet. I found many very good, and in some
> cases spot-on - - revealing some sharp people involved with thinking caps
> on.
>
> From my visit to your site GoldWeTrust.com I gathered you are its
> moderator. Although I'm unfamiliar with that, perhaps you might fill me in
> on its makeup, objectives, etc. - - since I found you appear to be leading
> valuable discussions on important subjects.
>
> You asked savvy a question.
> Regarding your 'about Buffet', I will not comment on what Buffet says on
> that subject or his motivation. Certainly, like most and which is natural,
> Buffet has his own agendas and self-interest, which is his right.
>
> In my own thoughts, I prefer data and data trends over rhetoric-only, in
> my work try to display said data on various critical subjects and then
> provoke the reader to form own views based on said data or present
> reliable data to the contrary.
>
> Hoping its helpful to you, I will take some time with my morning coffee to
> provide some response to your questions. Since I'm unsure how much of my
> works, the Grandfather Economic Report series, you have explored, other
> that part from which you copied your graphic of govt. spending ratios,
> below I will try to anticipate what might be pertinent to your questions
> from my own work - - point you various places and hope its helpful.
>
> Regarding your question as to what might be missing from the govt.
> spending numbers in my graphic, allow me first to state the numbers which
> comprise Federal and state&local spending in that graphic for 2010:
> $3.8 trillion federal govt. spending - 32% nat income
> $2.1 trillion state/local govt. spending - 18% nat income
> Sum = $5.9 trillion
>
> [said data are direct from appendix tables of latest annual Executive
> Branch's Economic Report to Congress]
> (Keep in mind the graphic states said spending as a percent national
> income, not of GDP. If related to GDP, which my late mentor Noble Laureate
> Dr. Milton Friedman advised me against for reasons you will find elsewhere
> in my work, the ratios would be somewhat lower).
>
> I will attach a few graphics to this email to enable you, if you wish, to
> review quicker later.
>
> Attached is a historic progression graphic ('Expanded Govt. Spending Share
> of Economy') of said govt. spending ratio data as shown in the chapter
> Govt. Spending
> Report, being the 3rd graphic on that page. It tells quite a dramatic
> story, over time, reaching all-time highs lately. You might also find
> helpful info from several graphics in the 2 chapters: Govt. Growth Report
> and the Federal Govt. Spending Report [a 2-web page report]
>
> Now to your quest for info RE what is not included in my graphic you
> displayed in your
> https://goldwetrust.forumotion.com/t9p540-inflation-or-deflation under the
> Buffet section.
>
> 1. Regulations - Add $2 trillion > Let's first respond to your point on
> regulations, where you said > 'And that doesn't include regulatory
> compliance (which is increasing radically now under Obama).'
> Again, I offer you some info, in case you have not yet found, from another
> of my chapters, called The Regulation Compliance Cost Report [a 3-web page
> report] You might scan a few graphics there and note said regulatory
> compliance costs (of course) are not included in reported govt. spending
> data because no attempt is made to collect, report and budget.
> From that chapter you will note my estimate (and this chapter says just
> that, my estimate from studies found and there referenced) is that fed +
> state/local govt regulatory compliance costs passed on to the private
> sector exceeds $2 trillion (another 17+% of the economy's nat income) - -
> which one should add to the above stated $5.9 trillion spending, thereby
> expanding the share of the economy impacted by govt all levels.
> (Shelby - let me here ask you, which in that chapter I ask all readers, to
> please let me know if in your endeavors you find more relevant studies on
> this subject than referenced and reported in that chapter, as such
> unfortunately are few and far between).
> Attached to this email is one of the graphics from that chapter ('Free
> Private Sector with spending & regulations 2010 vs 1947).
>
> 2. You mentioned possibly the mandated healthcare add-on. I have no data
> yet on that add-on, but if it is upheld such will be a huge biggie
> addition. So far I have not found (to me) creditable data as to what it
> might cost the private sector - - which, unfortunately, is typical of all
> govt. regulations issued - - as I cover in the regulation report chapter.
> While on this HealthCare subject, you might find the time to scan another
> chapter, called The HealthCare Report, which soon will be further updated,
> time permitting.
>
> 3. In your web report also you said, 'I would suppose the above chart also
> doesn't include Fannie and Freddie, which are pseudo-government agencies
> (feds backstop them), and now the government owns General Motors too, I
> wonder if that is in the above chart?'
> Very good points, Shelby. Although I do not have proof with hard data
> backup, until I do have such it would be savvy to assume such is NOT
> included. One simply needs to say > 'show me the data.'
>
> 4. Another biggie, of course, is that unlike most private sector
> accounting govt. does NOT accrue for future expenses - - such as Social
> Security, Medicare, Medicaid, government pensions and health care
> insurance federal and state/local. These are huge. I try to quantify some
> of such liabilities in a simple chapter you might find interesting, called
> Debt Summary Table. Additionally, for sure, spending does not incl.
> on-going and needed accruals for losses in GM, or in AIG, or in the TBTF
> banks, and on and on.
>
> 5. In general, you are correct that not all govt. spending is captured in
> published data. Therefore, reported governmental impacts certainly are not
> over-stated, rather under-stated.
> Just as companies, individuals, and governments oh so often love to
> over-state asset values - - for sure they NEVER overstate debt values and
> more often than not purposely understate their debts.
> Thus - - when we put together a 3-web page extensive chapter about debt,
> called America's Total Debt Report, such reports debts revealed, therefore
> understating all debt.
>
> Just in case it stimulates, I include two other graphics of major trends
> used by PTB to date to prop up things >
> trend US dollar internationally (from chapter called Foreign Exchange
> Report ) and trend dollar internally (from chapter called Inflation
> Report). Note the similar, long-term trends.
>
> There can be little doubt America, and much of the developed west, have
> extended and pretended so long by debt and trade deficits and government
> growth and currency depreciation that limits are now rapidly on top of us
> - - producing a huge runaway threat to my children's and grandchildren's
> generation.
>
> --------------------------------------------------------------------------------
>
> Let me stop here.
> You are invited to explore more of the Grandfather Economic Report series.
>
> I hope above is responsive and useful.
> I encourage you to continue your probing.
> When you have a chance let me hear about your takeaway and possible uses.
>
> very best regards,
>
> Michael Hodges
> Grandfather Economic Report
> http://grandfather-economic-report.com/
>
> Each generation hopes their children and
> grandchildren will have more security,
> education quality and economic opportunity.
>
> Certain trends threaten their future -
> compared to the past. Here's the proof.
> --------------------------------------------------------------------------------
>
>
>
> From: Shelby Moore
> Sent: Tuesday, August 16, 2011 10:11 PM
> To: michael-hodges@comcast.net
> Subject: Does your govt % of GDP include health care mandates, etc?
>
>
> I am trying to figure out what is the error in Warren Buffet's otherwise
> sound logic, and it appears to be he is not paying attention to the govt
> as a% of GDP. And as I state at following link, I wonder if you are
> missing many big factors in your calculation?
>
> https://goldwetrust.forumotion.com/t9p540-inflation-or-deflation#4521

So Buffet does not have a very good handle on the fact of why the capitalism of America is being bleed to death.

Maybe soon we will approach Eurozone Rigor Mortise if we are not already there:

http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html

==============================
ADD: another lie from Warren Buffet

Buffet said the very poor pay essentially no tax. Maybe that was a slip of the tongue, but it is simply untrue.

Actually the person making less than $7000, actually about 18% of the income in Federal payroll taxes, and that doesn't include state-level taxes, and sales taxes (poor spend most of their money and sales taxes are as high as double-digits). So poor are paying probably around 1/3 (33%) of their income in taxes.

http://market-ticker.org/akcs-www?post=192433

Finally, let's deal with the "but the poor!" crap and the truth about your W2 income.

Unlike most of the hacks who attacked this proposal I've run a business and made payroll.  I'm well aware of exactly what the payroll account actually looks like, what's withheld and what you never see as an employee.

First, you have deducted from your check 6.2% and 1.45% of your gross hourly (or salary) wages.  The 6.2% caps off eventually, but the 1.45% does not.  Most people do not hit the cap - unless you're in the top quintile, you pay this on every dollar and see it in every check.

But in fact you pay twice that much, because the employer is required to send the same amount in although they are prohibited by law from itemizing it on your pay stub and telling you the truth - you were, in fact, offered and paid 7.65% more than your wage.

I don't care what the government says I can tell you.  All I care about are facts.

Oh, but that's not all!  Employers are also required to pay FUTA.  That's the unemployment tax, and it's presently 6.2% on the first $7,000 in wages.  There's an offset if you pay into a state fund, but you still pay - it's just who you pay.  The working poor and lower-middle class - that is, someone making $10/hour or $20,000 a year for a standard 2,000 hour work-year (50 weeks of 40 hours) in fact is paying about 3% of his wages in that tax as well - and it's federally illegal to itemize that on the employees pay stub and disclose exactly how much is stolen from him in the form of that tax.  Since this tax caps out at $7k in annual wages it is extremely regressive, even more so than Social Security.

There are other employment taxes as well, but those are the big federal ones, and pretending they don't exist is intentionally dishonest.

So is ignoring unemployment insurance that must be maintained along with Workman's Comp.  Both are legally required and both are also extremely regressive, given that lower-income people tend to be more mobile when it comes to paid unemployment (it's a fact, like it or not) and thus tend to ramp your unemployment insruance rates (at least until you cap off.)  The latter two are state-specific and so I'll ignore them - in other words, I'm understating the common worker's actual compensation in my example.

QE3 to follow as SuperCongress passes stimulus:

http://www.financialsense.com/contributors/bob-eisenbeis/2011/08/19/central-bank-policy-euro-bonds-and-qe3

* EU won't disintegrate, it is becoming more dependent every day, i.e.debtors remain slaves to the lenders and socialism spreads.

* EU is becoming more like the USA (states with balanced budget admendments and Federal money printing operation) and the USA is becoming more like the EU (heavily indebted, ingrained socialism).

Thus I would expect the markets to bottom within a month or two (or less). My S&P bottom target remains 945 - 1030.

Notice the Libya revolution is likely to be viewed as positive, and thus may cause the gold premium to temporary abate.

We are likely to see more recession scare to bring about support for the fiscal stimulus and Fed actions:

http://www.financialsense.com/contributors/chris-puplava/2011/08/19/bernankes-worst-nightmare-pushing-on-a-string

http://brucekrasting.blogspot.com/2011/08/feds-plan-rumors-of-news.html?showComment=1314865077223#c5750009698133096018

shelby wrote:

Excellent detective work.

This is ratcheting step of the bankster model, where it kills off the community banks and gets all the securities into bankster control:

http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html

This will provide the stagflation hell I am expecting in 2012.

Yeah people will get more money, but prices will go up, so the people lose, the govt's share of the economy continues to increase, and the negative marginal-utility-of-debt will continue to increase (the more stimulost, the faster the "REAL" GDP is shrinking, i.e. nominal GDP minus the true inflation rate, not the liar CPI stats).

Karl Denninger comment on Bruce Krastings article, and afaics Karl is correct in his analysis of possible side-effects, but Karl doesn't get the point that the banksters want to destroy the pensions to push the dependence on the NWO.

http://market-ticker.org/akcs-www?post=193323

The next step in the "Think Like a Bankster" plan is now underway, "Transfer asset ownership, but retain prior owners as renters where possible":

http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain--but-not-for-you.html

http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html

Also someone pointed out that the refinancing thing enables the Robosigner issue to be solved in favor of the banksters:

http://brucekrasting.blogspot.com/2011/08/feds-plan-rumors-of-news.html?showComment=1314938630761#c5314869645644137976

Anonymous wrote:

This is an attempt by the banksters to rewrite all the notes and get borrowers to sign fresh.
Dont forget the robocop and MERS fiasco.
This would turn any non recourse loan into a recourse loan in the states allow such.
Major CYA
The banks love it because it creates the documents that may needed in the future to foreclose on borrowers.
Ben gets TARP II
The FED slims down
Fannie & Freddie takes on more shit loans.
Once upon a time on Christmas Eve past, there was a treasury secretary named Tiny Tim, who in the stillness of the night, raised the limit of toxic coal that F/F could swallow.
Unlimited.
Well Tiny Tim says it is time to make F/F swallow.

In Bernanke we bust & In Geithner we doubt

No doubt Hank is on speed dial for both.
What a freakin cartoon!
And they're gonna get away with it.
Unfucxing real

http://armstrongeconomics.files.wordpress.com/2011/09/armstrongeconomics-swiss-devalue-franc-090711.pdf

Essentially he said that the Swiss action redirects capital inflows from transient franc-denominated financial assets which pay 0% (thus are not attractive if franc will not be allowed appreciate relative to Euro) to devalued hard assets within Switzerland. Either way, Switzerland will experience stagflation, now instead of consumers holding a bunch of imported cheap goods in exchange for hot money inflows, the Swiss central bank will hold a boatload of Euros and Swiss consumers will pay higher prices for imported goods.

Armstrong says this is brilliant because it reduces the risk of sudden hot money outflows, and again Martin shows that he is not a free market thinker.

It is better for the govt to not intervene and let the Swiss consumers have ownership of their capital than central bank centralizes the ownership of the imported capital. Armstrong is wrong.

He is correct that this will drive more safe haven capital to gold. He doesn't make the point that it also exports the capital of Switzerland to support the Euro bailout.

The main point is that Switzerland has joined the EU monetary union. That is massive bullish for gold long-term (not necessarily short-term), because one-by-one every country that was not a disaster, is joining to become a disaster.

Discussion from February 2011:

Shelby wrote:Andy it is very interesting to ponder how the debasement of the dollar is going to play out at the end game.

I had reasoned and asserted in 2010, that global HYPERinflation would be impossible for any extended period of time, because hyper-inflating commodities would shut down production globally and it would quickly crater into global depression and chaos.

When there is a single country that is HYPERinflating its currency, then production only stops within that country. The production of commodities and services continues on indefinitely in the vast majority of the world, so the HYPERinflation can continue in that country for some time.

[...]

So yes, we will get a hyperinflation, but it will be nearly instant. You will either have gold and silver or you won't. Most westerners won't.

The other way it works is a stampede to gold & silver (and not commodities), with supply constrained by the globalists themselves, thus most westerners won't get any that way either. Which is what I think would happen if the westerners woke up and tried to buy gold & silver in massive quantities too soon. I wanted to test this theory by trying to find a way to market gold & silver at an exponential rate to westerners. I think it probably is just a pipe dream though.

anonymous wrote:Shelby,
Agree it will be nearly instant, travelling like a shock wave, agree it will probably be set off by something in Europe, then a short delay before the shock wave appears.

I think it will all happen very quickly, a game of musical chairs with 2 billion or so people and very few chairs to buy, it can’t last long once it starts.

Shelby wrote:Note that this chart if used the correct ShadowStats.com data, it would look much worse. It would instead show the fall continuing straight down off cliff after 1975 and not slowing down and down to less than $0.01 (1 penny) already. Also the historic volatility between $0.40 and $1.00 would look much smaller and be squeezed to the top the chart (due to the correct logarithmic scaling). Logarithmic scaling is the only way for humans to correctly visualize the exponential function (proportional change):

Having thought more about how the entropic efficiency is aided by "the path of the least resistance" in terms of orders moving faster to their demise, I think Armstrong is correct. This action forces Swiss citizens to buy gold instead of cheap imports.

Shelby wrote:http://armstrongeconomics.files.wordpress.com/2011/09/armstrongeconomics-swiss-devalue-franc-090711.pdf

Essentially he said that the Swiss action redirects capital inflows from transient franc-denominated financial assets which pay 0% (thus are not attractive if franc will not be allowed appreciate relative to Euro) to devalued hard assets within Switzerland. Either way, Switzerland will experience stagflation, now instead of consumers holding a bunch of imported cheap goods in exchange for hot money inflows, the Swiss central bank will hold a boatload of Euros and Swiss consumers will pay higher prices for imported goods.

Armstrong says this is brilliant because it reduces the risk of sudden hot money outflows, and again Martin shows that he is not a free market thinker.

It is better for the govt to not intervene and let the Swiss consumers have ownership of their capital than central bank centralizes the ownership of the imported capital. Armstrong is wrong.

He is correct that this will drive more safe haven capital to gold. He doesn't make the point that it also exports the capital of Switzerland to support the Euro bailout.

The main point is that Switzerland has joined the EU monetary union. That is massive bullish for gold long-term (not necessarily short-term), because one-by-one every country that was not a disaster, is joining to become a disaster.

Says that he didn't agree with QE2, the Fed has monetized some of the debt, and that all the members don't want to throw in the towel and get runaway inflation like in Weimer or Argentina. That is a pretty strong statement. It seems to me to indicate that it is very unlikely the Fed will act on QE3 on Sept 20.

We might get a natural bounce in the markets now, if Greece makes it past Wednesday, and with China vowing to buy Italy's bonds. DAX is probably due for a bounce. Gold is having trouble moving up with the dollar also moving up, as I expected. We might get a relaxation in the dollar back down to the breakout line at around 76.5, before the move towards 81. That might give gold one more chance to move up. It is looking to me still like there is going to be some final capitulation in S&P by November, perhaps as early as Oct or late Sept.

Gold could make another run up, or it could languish down into a range, or even drop.

At this point, I looking to put or call any extremes, and waiting that capitulation to do my final loading of silver. I do think eventually the USA will do a QE3, even if it just takes the form of the SuperCongress approving a big stimulost package, which the Fed is then obligated to fund to maintain low interest rates through 2013. This is clearly the final peak for the US Treasuries, because the Fed has thrown in the towel by making such a guarantee. So Fisher can say this or that, but the reality is the Fed already threw in the towel, it is just that the Fed govt has to actually do the spending. This won't be hyperinflation, but it will be severe stagflation, by a series of SuperCongress actions. It is the possible that we need that selloff on the markets in order to give the SuperCongress their cover for pushing through the stimulost.

http://finance.yahoo.com/blogs/daily-ticker/dollar-rebounds-richard-fisher-not-happy-being-nicest-171013340.html

I see a potential bearish H&S on the S&P which projects down to about $1030, and on gold a bearish descending triangle and H&S that projects to below $1700.

PIIGS spreads are skyrocketing:

http://market-ticker.org/akcs-www?post=194035

http://www.bloomberg.com/news/2011-09-15/short-seller-muddy-waters-block-says-chinese-consumer-demand-overstated.html

Note though that GDP is much larger now.

This means that China's GDP is becoming more capital asset intensive, not less. Hmmm. China is going to crash hard, when it finally crashes. They are going to have a massive oversupply of bridges to no where, and buildings in the wrong places.

http://globaleconomicanalysis.blogspot.com/2011/09/china-loan-shark-market-crashes-scores.html

China's "cash crunch", yikes!:

http://www.bloomberg.com/video/75962446/

Signs that Chinese are repatriating cash.

We could have liquidity crunch as I had been expecting since May. This would be the emergency that spurs the global QE3 reaction.

As I have said, we are heading for the bottom on the next selloff of silver and commodities. Be prepared to buy the fear and lockin your huge gains for 2012.

I share this because it is so striking. China's consumption share of GDP has dropped from 45% in 2000 to 34%, which is apparently unprecedented in the history of the world. Normal ranges are 50 - 65%, and recession lows perhaps to 45%. The implication is that China can not escape from a near-term implosion of their over-spending on infrastructure and subsequent decades of slow growth in the 3% range. Refer the link at the bottom of this article:

http://www.financialsense.com/contributors/michael-pettis/2011/10/21/chinese-malinvestment-is-worse-than-most-people-think

I extrapolate the implication is that the developing world is like a coiled spring of rising relative wages, that will be accelerated once China's mercantile model implodes and they become another developing consumer engine. It looks like China's mercantile model will hit the wall at about the same time that the western debt props do.

==============
China driven inflation to continue to at least 2013

http://mpettis.com/2011/07/no-hard-landing-but-no-solution/

http://esr.ibiblio.org/?p=3894#comment-335858

The most impressive capitalist moment I had was seeing a store built in a day. As in, the first day, the street corner was empty. Second day, construction. Third day, a free standing, fully staffed and operational cosmetics store.

Another sign that China is overinvested (malinvested) in capital infrastructure.

http://www.infowars.com/the-municipal-bond-market-is-imploding/

The real estate sector which is the source of local taxes, it going to get much worse:

http://www.infowars.com/ten-million-american-families-sliding-towards-foreclosure/

Cities can't borrow, states can't run a deficit but they can cannibalize city tax revenue:

http://humboldtlib.blogspot.com/2011/10/ca-ground-zero-for-muni-bond-crash.html

My conclusion is that within a few months, we will need another massive federal stimulus, and this will also give the Feds more control (i.e. the states will capitulate on Real Id, TSA police will supplement local police, etc.). Also I think the EU is dragging their feet, and at some point we will get a global contagion and need a massive global stimulus.

The question is that does come at us in multiple blows with only small half-steps on renewed stimulus throughout 2012, and then when the big crackup comes does the system fail perhaps by 2013 or 2014.

Or do we get some severe contagion within the next 3 months or so, then a huge stimulus reaction like in 2008.

Perhaps that question is irrelevant in terms of our investments. The central banks will have to debase, they have no other choice. They will debase until the inflation rate and thus "rationing" is so high that the masses riot in the streets by the millions. At that point, they will reset the currencies with a gold backing and super high interest rates.

We want to be in silver for as long as China still has the capacity to debase more and pump up their economy again. I think China can go through another debasement cycle before their population erupts into massive riots.

My crystal ball has become more lucid again.

I suggest reading the following linked article carefully, including watching the video and the linked PDF file near the end of this article:

http://www.financialsense.com/contributors/doug-short/2011/11/11/http%3A/%252Fadvisorperspectives.com/dshort/updates/ecri-weekly-leading-index

What is apparently happening is that the moderation of inflation since May, has caused consumers and producers in the USA to splurge a little bit on back-to-school spending (buy while the prices are low!), by increasing their debt.

Shelby wrote:

I am very curious what this entire report says?

http://www.shadowstats.com/article/no-396-3rd-quarter-gdp-october-confidence-september-durables-orders-and-home-sales

Denninger has some similar comments:

http://market-ticker.org/akcs-www?post=196634
http://market-ticker.org/akcs-www?post=196699

It is important to know if the government is cooking the numbers, or what is actually going on, so we can determine if this rally has long-term legs or is just a quick deadcat bounce as Denninger is implying below:

http://market-ticker.org/akcs-www?post=196679

But a tsunami of municipal bond defaults is underway (already at $11 billion 2011, which is greater than $8.5b in 2008, and accelerating with $4 billion Jefferson county default last week):

https://goldwetrust.forumotion.com/t9p555-inflation-or-deflation#4644
http://www.huffingtonpost.com/2011/08/02/meredith-whitney-there-are-increasing-double-dip-recession_n_916200.html
http://finance.fortune.cnn.com/2011/06/06/meredith-whitney-state-finances-are-worse-than-estimated/ (states spending 36% more than tax revenue, Fed backstop ended in June)
http://www.zerohedge.com/news/will-meredith-whitney-be-proved-right-end

The recession will hit Q1 2012 in USA.

However, this is coincident with China about ready to start easing again (China will not hit the wall until after 2013 when they've wasted all of their savings):

http://www.financialsense.com/contributors/chris-puplava/2011/11/11/stage-is-set-for-possible-china-surprise-in-2012

And EU is about ready to apply their "bazooka" QE:

http://www.nytimes.com/2011/11/11/world/europe/11iht-letter11.html?_r=2&partner=rss&emc=rss
http://yrah53.wordpress.com/2011/11/10/binismaghi/


So what we have is a mixed bag bottoming process in terms of commodity inflation. The Fed and SuperCongress will be forced to bailout the failing municipalities in terms of providing unemployment assistance, food stamps, etc.. So the QE worldwide is going to be back on the upswing, starting first in China and EU, then USA to follow by Q2 2012.

Thus I see massive inflation before the end of 2012, with an easy double in the silver price to $65+. The commodities have probably already seen their lows, although we might get one more dip of silver into the $26 - $30 range, if you are lucky.

Oil flow from the middle east is likely to be shut off in 2012. The elite appear to be going for a massive inflationary event before 12/12/2012 to bring the world to its knees. This severe inflation will cause the world to go into such debt debt, that after 12/12/2012, we will enter a very chaotic period with the global economy in disarray.

=========================================================================
My recent comments on why I think the EU will integrate into a fiscal union with plenty of QE
=========================================================================

Read this linked article:
Out Of The Ashes Of The Collapse Of The Eurozone Will A "United States Of Europe" Arise?

Also, Germany pushes towards EU fiscal unification before end of 2012.

Shelby wrote:

yellowcaked wrote:
http://armstrongeconomics.files.wordpress.com/2011/11/armstrongeconomics-financial-armagedon-110411.pdf

Armstrong has so many errors in this paper. I find it to be one of his worst, e.g.

There will be only two
possible solutions; (1) MONETIZE the debt or (2) DEFAULT on the debt.

The govt can also force retirees to hold the debt as their retirement investments.

This problem is a political one, where no one wants to give up their govt benefits, thus monetizing is not a solution either, because the demand for benefits will always increase (Iron Law of Political Economics).

Thus monetization and default are the same, the only potential difference could possibly be how the pain is distributed.

Bottom line is that everyone who sucks the tit of govt, and does not get their savings out of paper, is going to lose.

The pertinent timing indicator for gold is that when the monetary system is backed by gold, interest rates will climb, and that is the time to sell gold for equity investments.

Some people will prefer to buy bonds at that point, but saving-at-interest is the same as encouraging debt and pooling capital, and is how society ends up where it is now. It is also severely underperforms equity investment:

https://goldwetrust.forumotion.com/t124p30-theory-of-everthing#4640

I am hopefully going to make an online academy, and there one of the subjects I will teach is Economics. Adam Smith was wrong, Martin Armstrong is wrong, etc (Jason Hommel is correct):

https://goldwetrust.forumotion.com/t182-technology-that-changes-everything#4645

As for silver, when the world has moved to default stage where interest rates will be allowed to climb, then silver will collapse too, because there will be very little capital (paper will be destroyed) and thus growth in China will slow down to maybe 3% or negative for a while.

Some people think the great default is as soon as 2012. The central banks can keep printing money for as long as inflation is not out-of-control.

So the first thing we need to see is silver going crazy $75+ (probably $150+), before the central banks are out of ammunition.

The rollercoaster gyrations between QE and pause, are accelerating and shortening in cycle period, and this keeps people out of silver especially due to the volatility.

I think the govts and central banks are going to pause and delay as long as they can, but ultimately they will QE everything. And silver is going to rocket higher, probably sometime in 2012.

It will be a very volatile ride. Because the politics is much more fractured, and the inflation bomb fuse is very short now. The central banks and govts are trying to not have their hand forced, but they soon have no choice but to light that fuse.

Some people argue that Germans will never allow it, but of course all those retirees with their life savings in bonds, they want higher interest rates, but the system of saving-at-interest is a theft system that encourages debt formation. Thus there is no way they are going to get what they want. Instead the default will fall on their backs, as it should, because they did an evil thing their whole life.

Another factual error by armstrong

Armstrong wrote:

In Germany, two thirds of Germans surveyed in recent
polls believe that their parliament should NOT ratify more money for the euro-zone bailout fund and
agree with former chancellor Helmut Kohl that Angela Merkel's government is undermining Germany's
influence abroad. Chancellor Merkel is facing a revolt in her own party within parliament over a
September 29 vote to ratify more money and powers for the euro rescue fund. She is being publicly
criticized even by her ex-mentor Helmut Kohl who was the architect of German reunification. The real
danger is that Merkel’s refusal to restructure the euro-debt threatens far more than Greece. The
German people cannot be suppressed forever. They will get to vote one day and Merkel will be kicked
out the back door. Germany will turn inward and far more isolationist and the trade barriers will rise in
Europe

But he is wrong. Former chancellor Helmut Kohl is calling for more money printing:

http://www.spiegel.de/international/germany/0,1518,782757,00.html

Kohl. In recent years, he said in an interview this week with the magazine Internationale Politik, Germany "has not been a reliable power -- neither in domestic policy nor in foreign policy." He claimed to often wonder "where Germany stands today and where it is heading."

Halting Efforts

Kohl, who originally plucked Merkel out of obscurity to make her a cabinet minister in 1991, was referring primarily to trans-Atlantic relations and to concerns that the US no longer sees Germany as a vital foreign partner.

Kohl provided the hard place. His criticism of the chancellor in the Internationale Politik interview was not limited to her foreign policy profile. The committed European also repeated his vociferous critique of Merkel's halting attempts to prevent the euro zone from crumbling. He said that "we have no choice" but to provide aid to Greece. Europe, he feels, needs "energetic action and a package of forward-looking, intelligently thought-out measures free of ideology with which we can get Europe and the euro back on track and secure our future."

http://www.spiegel.de/international/europe/0,1518,775085,00.html

You can clearly see that the people of Europe want the "discipline" of a political union:

http://www.spiegel.de/international/europe/0,1518,775085,00.html

Europeans are collectivists! They will always opt for collectivity over efficiency! Anyone who has worked with anyone from Europe will know this is true!

Even the "populist" parties in Germany, are not calling for less government. In fact, one of them calls for free education for everyone. And they were angry at Merkel for not joining the "liberate Libya" war.

Soros on EU

Read this together with my prior 2 emails on Armstrong, then I think you will see what is coming is the "bazooka" as I had expected:

http://www.nytimes.com/2011/11/11/world/europe/11iht-letter11.html?_r=2&partner=rss&emc=rss


Holding silver for $75+. Govts will massively QE again. They have no other choice. The people want govts to fix the problem. They don't want their retirement accounts (in Germany for example), i.e. their investments in debt, to decline in value.

Everybody has a vested interest to see interests rates continue to decline. Remember when interest rates rise, then bond investments lose value, i.e. retirement plans will implode.

Europe is mostly retirees.

People get this logic backwards, they think rising interest rates are good for retirees. No! The opposite actually. Rising interest rates means the economy is imploding and the retirees are being wiped out.

Actually retirees should stay away from bonds entirely, but that is my bigger point about that people are too stupid and want debasement.

re: Soros on EU

I simply don't view it as force. The Germans want their cake and eat it too. Europeans are hypocrites. The German retirees want to be able to buy bonds of the PIIGS, then sell them manufactured goods and take all the money back, then expect their retirement plans to be solvent. That is a collectivist model and not capitalism. The Germans don't want capitalism. And so they will not get it. Soros is not forcing socialism on them.

No I was expecting a crash of S&P to about 950, not as massive as 2008. I expect the next massive crash after 2012 (when inflation brings the global economy to its knees).

On Oct 2010, I wrote an article published at marketoracle (when silver was $22), predicting it to go to $45 - $47 before summer of 2011, then to drop to $25 - $27.

That is exactly what happened.

I don't think the drop in the S&P is done yet. ECRI is still expecting another wave of recessionary forces.

I expect EU, USA, and China will be back in stimulating monetary mode before summer 2012. And that is why I am speculating on a double of the silver and oil price before end of 2012.



>
> Not surprising hardcore globalist Soros wants to force Germans onto the EU
> Titanic. Thanks for the link, I wasn't familiar with his "bazooka"
> metaphor.
>
> Weren't you expecting a massive PE crash (and I assume an economic crash)
> this November?

78% of Germans want what Soros wants

Soros is not forcing EU integration on them, they want it:

http://finance.yahoo.com/news/poll-78-percent-germans-see-102232348.html

Refer to my prior post "re: Soros on EU".

Globalists prepare to replace the national govts of EU

http://market-ticker.org/akcs-www?post=197378
http://www.infowars.com/super-globalist-to-replace-italys-berlusconi/