OT: "It could never happen here"

From an investment newsletter:

"It could never happen here"... That's the refrain we hear from our friends and colleagues. They say it after we've gone over all of the numbers involved in the government's financial position and explained our out-of-consensus view that the U.S. is not only heading toward a period of massive inflation, but such an outcome has long since ceased to be avoidable. People respond ? "Oh, that could never happen here." ? in the same way they repeat a catechism.

We don't think our view is shocking or even surprising. Much like with our GM analysis (we predicted bankruptcy as early as 2005), when you simply look at the numbers, the outcome is unavoidable.

And then there's history. Not a single brand of paper money has ever lasted. Or you might say, in all of recorded human history, gold remains undefeated. We expect that trend to continue. Likewise, we can't recall any nation that ever repaid its debts (in sound money) once they'd grown to 100% of GDP. And watching our neighbors "strategically" defaulting on their mortgages in record numbers, we see no reason to expect Americans will prove to be any more honest about their government's obligations.

Since America isn't the first powerful democracy to default through inflation, it may pay for investors to be familiar with the most famous such event...

In 1915, just after World War I began, you could exchange 4.2 German marks for one U.S. dollar ? and that was when the U.S. dollar was still backed by gold. As you know, Germany lost the war. Its people were literally starving by the end, thanks to the British blockade. With no alternative except starvation and annihilation, Germany accepted an armistice that demanded $12.5 billion in reparations. The debt was equal to 100% of Germany's GDP prior to the war. At the time, the exchange rate stood at 65 marks to the dollar, a devaluation of roughly 95%. Most people believe Germany's hyperinflation was caused by this war debt. Not exactly.

After the war, Germany was broke... That's true. But the mark was cheap. It seemed like a terrific investment opportunity. Most people believed Germany would find a way to finance its debts. We imagine foreign investors at the time said, "Oh, hyperinflation could never happen in Germany..." And so speculators pumped another $2 billion of additional credit into Germany. Then came trouble. Germany's main creditor (France) refused to renegotiate the terms of the armistice. And the German people lost confidence in their own government. The people didn't want to pay the debts. Assassinations began to occur, most notably the murder of Walther Rathenau ? the foreign minister. Investors lost confidence in the country. They abandoned the mark.

German prices rose fortyfold in 1922. The mark fell from 190 to 7,600 to the dollar. When Germany failed to make a foreign debt payment in 1923,

40,000 French and Belgian troops invaded. To appease its creditors, the German government printed more money. It issued 17 trillion marks in 1923 (compared to 1 trillion in 1922). By August 1923, a dollar was worth 620,000 marks. By early November 1923, the exchange rate hit 630 billion to one.

Could something like this happen in the U.S.? Not exactly. We doubt, for example, China will ever attempt to invade the U.S. to force debt repayment. But we think what will likely happen could easily be worse than Weimar Germany. You see, the mark wasn't the foundation of the world's economy. Today, more than 60% of all bank reserves around the world are U.S. Treasury obligations. As the U.S. continues to run massive annual deficits and as the Fed engages in "quantitative easing," the world's supply of money is growing, by large amounts. Sooner or later, people holding paper money of every variety, not just Uncle Sam's, will come to doubt its most important quality ? the stability of its exchange value. The resulting massive inflation will not merely strike the U.S., but the entire world.

Reply to
Robert Baer
Loading thread data ...

After they concealed the M3 money supply indicator, what ELSE would tip off the imminent crash of the dollar?

Reply to
Greegor

Look at the graph, here:

formatting link

James Arthur

Reply to
dagmargoodboat

That is scary. It is a sweet deal for the money men, though. Getting paid interest on your *reserves* is a miracle. That makes it easy to understand why there was ten fold increase in reserves.

Making money by doing nothing is the first step in the inflationary spiral. Making money by shuffling papers is the next.

Whatever happened to making money by 'adding value', as in ore > steel

mike

Reply to
m II

=96

I too predicted the demise of GM, I predicted it here, and the cause: union entitlements. I also called the housing bubble years before, and the internet bubble.

It's not genius, it's just math.

So far this year Mr. Obama's spending $1.66 for every dollar he takes in:

formatting link
record/

That can't last, and it won't. We've been borrowing to pay entitlements for years, a glide path to economic collapse. Right now? It's a nose-dive.

We must cut spending, savagely, now. We can't afford all of this spending. It's that simple.

James Arthur

Reply to
dagmargoodboat

Today there's a battle of ideas. It's between the chain of people who make refrigerators, and those who imagine they can create products and value by that act taking money from some men, and giving it to others.

James Arthur

Reply to
dagmargoodboat

------------^^^ "the act of"

Grrr.

James

Reply to
dagmargoodboat

That's pretty much the derivative of the money supply, and of course it spiked up as the US economy sank into the worst recession since the Great Depression around the end of 2007 / early 2008. The rate of change is now apparently negative, but the accumulated change is still there.

formatting link

Reply to
Spehro Pefhany

Politicians of all stripes are doing that. As you know, it's not a 1.6 debt. It's 1.66 increased by the compounded daily interest for decades, if not centuries.

The US National debt is roughly 14.3 Trillion Dollars. That is 46,600 dollars per man, woman and child.

That's not so bad is it? Well, how many of the whole population are actually taxpayers? A quarter? All of a sudden, that sum becomes 186,

000 per taxpayer. What does the average taxpayer pay? Last time I looked it was 7400 dollars a year average per taxpayer.

That means the outstanding debt could be paid off in twenty five years, if ALL the tax income went towards nothing else AND there was no interest on the oustanding money.

That can't happen and isn't. The situation is impossible the way it stands.

It would appear the sole purpose of politics is to put the citizens into a fiscal slavery. Welcome to the rebirth of Feudalism.

Perhaps a Saint in the Public Service will show up and improve our lot upwards, to Sharecropping.

mike

Reply to
m II

Media constantly quotes the changes, but rarely do they give you the figures themselves.

We spiked it of course. It doesn't print itself.

The 1st one shows d(M3)/dt, but not the big spike, due to use of moving averages, which smooths things out.

Nice graphs. Thanks.

-- Cheers, James Arthur

Reply to
dagmargoodboat

I know nothing about economics. Yes, the spending scares me, as it should everyone.

But what with the US govt, being the largest employer, what are the implications of cutting US spending? As much as it grieves me to look back and see how much we spent on military hardware (not the armed services themselves, but the weapons contractors), what if a large percentage of them were suddenly unemployed? What social impact would there be? That scares me more.

I hope for a "middle way" where we don't spend ourselves into hyperinflation, yet don't descend into a 1930's depression. It's a razor's-edge balance, to be sure. Never having been in this situation, it's a blind man's path.

Reply to
Paul Conners

formatting link

We are bankrupt. Politicians will NEVER cut spending, especially on "entitlements" where they get the votes. They will always increase taxes. ..just a few givens...

Reply to
Robert Baer

Then explain why there was no COLA for Disabled Veterans this year, as well as those on Social Security? This, in spite of higher prices on food, gasoline, higher property taxes and insurance?

--
Anyone wanting to run for any political office in the US should have to
have a DD214, and a honorable discharge.
Reply to
Michael A. Terrell

Is it a tax? NO..so no increase by that account. Is it an "entitlement"? No..COLA is not, so no over-riding reason to cut or to increase.

Reply to
Robert Baer

I stated that my property taxes went UP. Sales tax has gone up in a lot of places.

Some people seem to think it is. I've heard a lot of crap from people screaming that Disabled veterans don't deserve anything.

Wait till you have to watch a pension not keep you with your expenses.

--
Anyone wanting to run for any political office in the US should have to
have a DD214, and a honorable discharge.
Reply to
Michael A. Terrell

"Increased employment, and greater wealth as a nation" is the short answer.

The implications are the usual implications of taking overhead people and putting them into production, of taking economic drains and turning them into economic producers. This isn't a judgment on the worth of those people mind you, but on how they're employed.

The idea of "government as an employer"-- the wrong idea that the government's adding and providing all those jobs to society rather than the reverse--invokes what's called the "broken window fallacy." That's the idea that replacing windows is expensive, so breaking them all will create a lot of economic activity, stimulating the economy. (It sounds dumb when explained plainly like that, but if you weave it into a story most people fall for it. Cash-for-clunkers, for example.)

The fallacy is that you have to count the benefits *and* the harms caused--the loss of valuable things destroyed (windows, cars), and the harm done to the people who have to replace them.

To see past it all you have to do is ask--

Q: "Where did the government get the money to pay all those people?" A: The government took it from other people, people who were building things, growing things, making things. So, there's less money available for doing those.

Q: And if funneling money *into* an area creates jobs, what happens when you siphon money *out*? A: Jobs are destroyed. Businesses have less money, pay less, hire less. And sometimes, they fail.

Every government job comes at the expense of a greater number of jobs for people who make and do things. Every government job trimmed is multiple private jobs created or saved. Government jobs are a less- than-zero sum game.

Of course we need some government--and certain rudimentary levels of government coordinate and facilitate, making society possible, so that's overhead we gladly pay for--but we're waayyy beyond that. Twenty thousand tons of a good thing isn't always a good thing.

That's called "creative destruction." Like wagon-wheel makers when cars came on the scene: yes, there was temporary dislocation, some unemployment ("destruction"), but ultimately the wagon wheel makers simply weren't needed in those numbers any more, society was not being served by keeping them in making wagon wheels, so those people got new jobs doing things that were needed and valued by the society ("creation").

The net result is "efficient allocation of resources," something our system does like no other, a magical, unattainable goal for most systems, and something that governments are notoriously horrible at. It's one of the main secrets to our success, a prosperity unparalleled in human history.

But more to your point, it won't happen quickly if we do it voluntarily--government has a long time-constant. The "sudden" part is if we spend ourselves out of money, which we're currently trying desperately hard to do. If you let if get there it builds until it unravels one day overnight, like Lehman Brothers.

I don't see any razor's edge at all. We're not going to spend our way out of debt. Borrowing makes things worse, today, in several ways, and much worse in the near, mid, and long-term future. Borrowing to "break windows," as we're doing, is insanity.

-- Cheers, James Arthur

Reply to
dagmargoodboat

"

r,

n

The short answer here is that the government calculated there was no inflation, so no cost-of-living increase needed.

But not to worry, BHO's gotcha covered. Did he ever send seniors those $250 checks to remind them what their votes are buying, or is he saving that for closer to the election?

formatting link

10

-- Cheers, James Arthur

Reply to
dagmargoodboat

From Wikipedia's article on serfdom:

"By taking on the duties of serfdom, serfs bound not only themselves but all of their future heirs."

-- Cheers, James Arthur

Reply to
dagmargoodboat

But, but, but... We're told "It (unemployment check) creates jobs faster than almost any other initiative you can name."

A) Printing presses B) Chinese C) Taxpayer D) All of the above

I suppose the Chinese are making things.

Reply to
krw

nts"

year,

es on

in a

Disabled veterans are sometimes con artists claiming the popular problem of:

Post-Traumatic Stress Disorder (PTSD), or "I have nightmares at night from all the fighting and can't hold a job, please pay me."

All you have to do is convince a shrink you can't sleep at night, which is apparently easy to do. I know two successful cases, (both intelligent con artists).

-Bill

Reply to
Bill Bowden

ElectronDepot website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.