Closer to the mainstream: Hyperinflation within a year?

Posted by James Bowery on Wednesday, 29 November 2006 09:11.

As previously discussed in Entering the mainstream: Hyperinflation within a year? (October 23) and Hyperinflation within a year? before that (July 16), it is reasonable to ask whether we might expect the first signs of hyperinflationary pressures by next July. The Drudge Report may not be mainstream but when it headlines a story, as it did today, titled:

DOLLAR PLUNGES TO NEAR 15-YEAR LOW

Less than halfway to the prediction of next July, one is entitled to wonder if my question posed last July is going to be mainstream even before next summer.

Some other stories since my October 23 revisit follow…

Breitbart reports that:

“Sales of existing homes posted a tiny increase in October, the first gain in eight months, but the median price of homes sold last month fell by a record amount.”

The drop was 3.5% from a year ago.

The New York Times reports that:

“Orders for durable goods, which include everything from jet engines to computers to refrigerators, declined in October by 8.3 percent, or $19 billion at a seasonally adjusted annual rate, from the month before. The figure stood in sharp contrast to the rise of 8.7 percent posted in September.”

“The biggest drop in the latest month was in purchases of transportation equipment, specifically civilian aircraft, which contracted by an annualized $10.6 billion. But the slide was also steep for orders of non-defense equipment other than aircraft.”

“The overall drop in durable goods orders — the biggest in more than six years — was larger than economists had forecast, and it suggested that businesses are beginning to feel and respond to slower economic growth.”

Bloomberg reports that:

People’s Bank of China Governor Zhou Xiaochuan said he has a ``clear’’ plan to diversify the country’s foreign-exchange reserves.

China’s foreign-currency reserves have exceeded $1 trillion to become the most ever held by a single country, China Central Television reported on Nov. 7, citing the nation’s currency administrator.

Financial Times reports that:

“A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.”

The New York Times reports that:

“The dollar dropped sharply against a broad range of major currencies today, and the euro broke through the $1.30 mark for the first time in a year and a half, highlighting concern about the strength of the American economy.”

“The dollar’s losses came during a thin trading day in which the British pound rose to its strongest value against the dollar in two years. The Japanese yen and the Swiss franc also gained at the dollar’s expense.”

The New York Times reports that:

“Construction of new homes slowed last month to the lowest level in six years, as builders faced the reality that home buyers have turned wary and prices are in decline.”

“The Commerce Department reported this morning that the number of new homes started by builders October was 14.6 percent from September, at seasonally adjusted annual rates.”

I’m not going to go back over all the reasons the current regime must resort to hyperinflation—click through to my prior posts for that—but I will say that this quote by the OECD from Drudge Report’s headline story, will likely typify the coming months and may cause the impending catastrophe to take the form of hyperinflation:

Further monetary tightening should wait until a fully-fledged exit from deflation finally materialises,” it said.

I should wrap up with the reason hyperinflation, should it come to pass, will be very crucial for majority rights:

Our “interesting time” is the breakup of the American Empire—and the similarity to the breakup of the Austro-Hungarian Empire around WW I is haunting. Arising from that period an Austrian named Adolf Hitler rose to power due, in large measure, to the policies of a Jewish-controlled Wiemar Republic which presided over a profound hyperinflation. Hyperinflation allowed those with financial skills and connections to centralize real wealth during a virtual depression—which is one reason for the profound resentment toward German Jews—resentment used by Hitler to become dictator. There are many differences between the American Empire and the Austro-Hungarian Empire but the similarities are sufficient to render the analogy valuable.

I’ll detail in a later post how I think the fate of National Socialist Germany (or the also somewhat analogous Roman Empire during the rise of Caesar) can be averted but I do not think we can ignore the potential for a vicious hyperinflation rising more rapidly than many may think plausible.

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Comments:

Posted by Freizeitlandwirt on Tue, 05 Dec 2006 01:24 | #

I’ve been watching this for some years now, waiting for the other shoe to drop. I made a few dollars on gold by listening to the bears, but nothing more as of late. The market has been holding steady at the top for a while now and home lenders must be scraping the bottom of the barrel for borrowers by now. With personal debt still in the historically high range and savings still negative, it may be time for some serious hibernating. Maybe the “plunge protection team” has unlimited power but I don’t see how they could hold up this situation much longer, especially with dollar confidence down so far. I can feel it, something wicked this way comes…

Posted by Fred Scrooby on Tue, 06 Nov 2007 00:09 | #

“DOLLAR PLUNGES TO NEAR 15-YEAR LOW” (—from The Drudge Report, quoted in log entry last December)

Eleven months later: top fashion model announces refusal to accept payment in U.S. dollars:
demands payment in euros only.

Posted by Fred Scrooby on Wed, 07 Nov 2007 05:12 | #

Paul Craig Roberts, last week:

The “Cakewalk War” in Iraq was supposed to be over in a few weeks and to pay for itself out of Iraqi oil revenues. The war is now five years old and has cost American taxpayers, and those left dependent on government programs by decades of a welfare state, $1 trillion in out-of-pocket and already incurred future costs.

As large and troublesome as this cost is, it pales in comparison to the damage the war has done to the value of the dollar and its role as reserve currency. Since 2001, the Euro has risen 60 percent against the dollar.

This means much more to Americans than the higher cost of a European vacation and status symbol German cars. The US dollar is losing its reserve currency role when the Euro, the currency of a nonexistent country—Europe—becomes so much more desirable than the dollar that it rises 60 percent in value.

The Euro is a monetary unit that has run far ahead of the political entity whose currency it is. Europe still consists of separate sovereign states, and many of them are unhappy with the Euro. Yet, since 2001 people throughout the world have been shifting from dollars to Euros.

It is not normal for people to flee from the reserve currency. It only happens when people believe it cannot continue to fill that role.

The US dollar is under double assault. One assault is from the offshoring of American jobs, which turns US GDP into foreign GDP and worsens the US trade deficit. It is not possible to achieve a trade balance when the production of goods and services for the US market is being moved offshore by US corporations.

The other assault is from the US budget deficit. Americans have become so hard pressed that their savings rate is negligible. The US government has to rely on foreigners to lend it money for its annual expenditures. Washington’s two biggest bankers are China and Japan, the countries with the largest trade surpluses with the US.

The transformation of the Iraq “cakewalk” into an interminable war has run up a one trillion dollar price tag, and an even larger war with Iran is looming. US generals and neoconservative ideologues predict a decade or multi-decade long war in the Middle East. Washington’s bankers are waking up to the reality that they will not be repaid.

The only reason the dollar has not already lost its reserve currency role is that the only alternative is the currency of a non-existent political entity. Yet, even the Euro, a virtual currency, may have taken the dollar’s role by the end of 2008.

Full of hegemonic hubris, the US government does not understand that US power and hegemony have always depended, not on missiles and military force, but on the financial power conveyed by the dollar’s role as reserve currency.

The reserve currency is world money, good in any country to pay any bill. The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency.

There is abundant evidence that the loss of confidence in the dollar is underway. When it is complete, the US will no longer be a superpower.

The other thing that will take away the U.S.‘s superpower status is its racial transformation from Euro to non-Euro, mainly Mexican and Negro but with plenty of other mystery meat thrown in as well. The individual who has both Negro and Mexican racial heritage is called a Zombo in Spanish. No one ever saw a Zombo nation, what the U.S. is transforming itself into, occupy the position of superpower.

Never existed. Never will.

Posted by Fred Scrooby on Fri, 09 Nov 2007 05:15 | #

Paul Craig Roberts on the wider significance of Gisele Bundchen’s wise new modeling-contract stipulation.

Posted by Fred Scrooby on Wed, 14 Nov 2007 00:37 | #

Patricia Bündchen, the twin sister and manager of the world’s top model, announced that Gisele now prefers to be paid in euros rather than dollars. Almost simultaneously, the Chinese central bank predicted that the dollar is likely to lose its status as the world’s leading currency. [...] Translated into Texan, what the Chinese politely told the Americans last week simply means: Unless something happens, all hell will break loose. [...] Last week’s remark by a Chinese central bank official should be interpreted as a warning, not a threat. Indeed, China has no choice but to respond, given the dollar’s ongoing weakness. For these reasons, an attack on the US economy is probably the most easily predictable event of the coming years.

(Hat tip)