The Four Horsemen of the Apocalypse by Albrecht Durer
Are we in for a Zimbabwe-like hyper-inflationary Great Depression? This guy from a website called Shadow Stats named John Williams thinks so. Tyler Durden has the breakdown.
Durden quotes Williams (his site is subscription only):
Williams does not mince his words:
The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar. The results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.
It seems that Williams gives Alan Greenspan the “credit”:
The crises have been generated out of and are centered on the United States financial system, triggered by the collapse of debt excesses actively encouraged by the Greenspan Federal Reserve. Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies — policies that limited real consumer income growth — Mr. Greenspan played along with the political and banking systems. He made policy decisions to steal economic activity from the future, fueling economic growth of the last decade largely through debt expansion.
The Greenspan Fed pushed for ever-greater systemic leverage, including the happy acceptance of new financial products, which included instruments of mis-packaged lending risks, designed for consumption by global entities that openly did not understand the nature of the risks being taken. Complicit in this broad malfeasance was the U.S. government, including both major political parties in successive Administrations and Congresses.
As with consumers, the federal government could not make ends meet while appeasing that portion of the electorate that could be kept docile by ever-expanding government programs and increasing government spending. The solution was ever-expanding federal debt and deficits.
Purportedly, it was Arthur Burns, Fed Chairman under Richard Nixon, who first offered the advice that helped to guide Alan Greenspan and a number of Administrations. The gist of the wisdom imparted was that if you ran into problems, you could ignore the budget deficit and the dollar. Ignoring them did not matter, because doing so would not cost you any votes.
Back in 2005, I raised the issue of a then-inevitable U.S. hyperinflation with an advisor to both the Bush Administration and Fed Chairman Greenspan. I was told simply that “It’s too far into the future to worry about.”
Indeed, pushing the big problems into the future appears to have been the working strategy for both the Fed and recent Administrations. Yet, the U.S. dollar and the budget deficit do matter, and the future is at hand. The day of ultimate financial reckoning has arrived, and it is playing out.
This piper will be paid down the road right? I mean — our politicians wouldn’t misunderestimate debt and crisis would they? Would they?
Williams continues (emphasis mine):
Before the systemic solvency crisis began to unfold in 2007, the U.S. government already had condemned the U.S. dollar to a hyperinflationary grave by taking on debt and obligations that never could be covered through raising taxes and/or by severely slashing government spending that had become politically untouchable. The U.S. economy also already had entered a severe structural downturn, which helped to trigger the systemic solvency crisis.
The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government’s solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year.
And of course this is America so we’ll always land on our feet right? Right?!?
The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover obligations. The alternative would be for the U.S. to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money. With the creation of massive amounts of new fiat dollars (not backed by gold or silver) will come the eventual destruction of the value of the U.S. dollar and related dollar-denominated paper assets.
What lies ahead will be extremely difficult, painful and unhappy times for many in the United States. The functioning and adaptation of the U.S. economy and financial markets to a hyperinflation likely would be particularly disruptive. Trouble could range from turmoil in the food distribution chain to electronic cash and credit systems unable to handle rapidly changing circumstances. The situation quickly would devolve from a deepening depression, to an intensifying hyperinflationary great depression.
While the economic difficulties would have global impact, the initial hyperinflation should be largely a U.S. problem, albeit with major implications for the global currency system. For those living in the United States, long-range strategies should look to assure safety and survival, which from a financial standpoint means preserving wealth and assets. Also directly impacted, of course, are those holding or dependent upon U.S. dollars or dollar-denominated assets, and those living in “dollarized” countries.
We’re in the very best of hands aren’t we?
As Doug Ross wrote: “That’s why federal spending above its revenues should be illegal, punishable by crucifixion (or perhaps something even more painful).”
I’m no macro-economist, but it seems that all these so-called bailouts has done is bought the fat cats a couple of years to get them selves set up while the rest of us grow gardens in our backyards and barter for services. Unlike the 1930s where villains were difficult to pinpoint and the government persecuted strawmen — there is no doubt who will suffer from this — and it won’t be the common people. We will bring our voices to bear. Someone who knows more about economics please feel free to make me feel better about 2010.
h/t: Instapundit
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This is what Glenn Beck has been saying for a while, now. And, having been right about the last (current) financial debacle – this is truly scary stuff.
So I’m starting a list for the new year. So far I’ve got ammo and rice. Probably exchange what money I can be afford to live without, for a while, into gold.
-Feel free to add your suggestions.
I’m not a believer in gold as a hedge against economic trouble. Sure it’s good when a currency is worth something but with no defacto currency to trade in it just becomes a shiny paperweight. Look at Nigeria which is in a hyperinflation scenario and the things that they are trading in are weapons and US dollars. When Russia went through a softer version of this in the early 90s it wasn’t gold people were trading in it was bread and blue jeans. If something like this does in fact happen in the US (which is essentially unavoidable without drastic painful changes) it will be commodities that will be the new currency; food, clothing, weapons, and heating oil or fire wood.
Live on a sail boat and learn to fish.
When you adopt aggressive free market policies, recovery comes pretty quickly (see post-WWII West Germany, with its hyper-inflated Reichsmark, or post-Saddam Iraq). The Great Depression was significantly lengthened through aggressive command economics; the creation of government-propped companies in key industries, state-supported monopolies, price and production controls, and very anti-competitive regulation across a wide range of economic activity. Reckless as this Congress has been, they haven’t recreated the worst of FDR’s follies.
Think Obamacare may just do the trick, though.
So what politician will stand will scrap the worthless dollar and force feed Americans a sound, gold (or other precious metal) backed currency as Ludwig Erhard did on Germany when literally overnight he scrapped the worthless Riechsmark for the gold-backed Deutchsmark? And at the same time throw out all laws requiring minimum wage, and anything else that creates effective wage and price controls?
Or do we have to wait for that future person to arise after the Islamo-nazi jihadists have reduced several American cities to rubble in order to mimic the condition of Germany in 1948?
Colonel Allen West? From all quality people now running for office, someone might arise. Who can say? And who’s to presume that it will have to force fed, if something like this should come to pass? A recent poll showed that 73 or 76% of Americans preferred the free market, up from 53% in ’08. Looking at the rising tide of anger of what the government is doing now, who knows what it could be in the future? Maybe revolution?
I’m not making any predictions. Maybe someone will have to force feed it. Maybe they won’t. Maybe we won’t see a second Great Depression. Maybe we will. Maybe something will happen that none of us saw coming. As the conditions of two situations are never identical, their progression is never quite the same. In any case, Floyd asked for a counter-balance of some hope. That’s all I supplied. Take it for what it is.
They’re coming close with this Jobs for Main Street Act they want to shove through. It smacks of another WPA scheme.
Very well said David. They are certainly trying to mimic FDR’s policies though. On FDR I’ve never truly felt they were his policies, I think FDR caved to public anger and the political realities created by the likes of populist such as Huey Long. If it weren’t for WW2 we would have only fallen into a ever deeper depression.
Unrelated David. Are you going to be calling in to RF3D today?
ObamaCare is onerous, but it’s a pathway and it’ll take a few years for the worst stuff to kick in. If it isn’t killed early… Well, I won’t make predictions.
Is this the way to start the new year at Threedonia?
Come on Floyd – did you have to hit us with this ON THE FIRST DAY OF THE YEAR!!!!
It’s the second day of the year — bracer time!
I’m actually curious as to the possibility of that scenario and the practicalities of preparing for such eventuality. I’m no conspiracy theorist or doomsday guy (though I do believe a reckoning must come somewhere — does anyone really believe their generation will pay the price?)
Razor blades? Nah… See Sunday Gospel above…
To any Threedonians in range, make sure Floyd doesn’t get near any razor blades…
Thank you Clinton, George W. and Obama. May thee dine in hell.
We should be grateful to BO,David…he has awakened a great many people from a long slumber
It’s pretty grim, alright. A basic problem was always spending more than you earned. Something they all should have learned in the second grade. It caused the implosion in the housing market, people’s personal finances, and in big government. And now in Obamaland, where there is virtually no limit in spending, the faster they spend, the faster a possible or probable collapse.
Since the 1980′s, I’ve had concerns if I’d ever be able to draw from my retirement account. The last couple years I had serious doubts. The account dropped like a rock and to date, has slowly worked it’s way back to recover about half of the losses. February 18, 2013 is my magic number. It’s articles like this that still make me wonder if I’ll ever see it.
Might as well just kill myself and save some time and money.
Chin up, Jake! Despair’s for suckers.
Self-reliance. For me, it’s always been the key.
I’ll weigh in with a firm and resounding, perhaps.
I agree with most of what David wrote, which, when you break it down is rather wishy-washy. I can find a guy writing stuff like Williams from every year of the last 40 years, and so far they’ve been wrong for 39 of those years. Is it possible for the U.S. dollar to collapse? Yes. Certainily. Did Beck call this? Kinda-sorta, but he has called a lot of worse things that haven’t come to pass. Beck tends to always go with the Church of the Latter Day Saints complete collapse/rice and beans outlook on the future, so, when things go south he’s a genius, when they don’t he doesn’t dwell on his prior predictions. I like Beck, but I ignore the emotion and count the hits and misses. He’s batting about .500.
The hard thing about looking at apocalyptic scenarios regarding the U.S. is the influence we have on the rest of the world. If we were another country, say Belgium, doing what we’re doing an economic apocalypse would almost certainly be unavoidable. But we’re not Belgium. When we lose everyone else loses too. So other countries are likely to do a lot to keep us gonig.
I am very grim about the outlook. We are way beyond any sense of proportion with our fiscal policies. The one, great hope I hold out is growth. I have almost no confidence the current administration will figure this out, but I do hold out hope a new administration can. A huge, private sector boom can fill the government coffers quickly, and make that debt to GDP ratio much, much more reasonable. But beyond that I don’t see a painless way out of this. I sincerely hope I’m missing something. Barring that I sincerely hope we can get a pro-America/pro-private industry administration soon.
One other note. Assume you think Williams has it right. What do you do? If the dollar collapses we’re all hosed equally. What assets can you obtain that are not tied to the dollar, and in what quantities can you obtain them? If you believe this stuff (and I’m not saying it can’t happen) then your best alternative is to cash in now and move to a country where you don’t think this will happen. If you’re not willing to do that, then you either don’t believe it, or you’re not accurately examining the situation.
We mock Al Gore for claiming carbon is destroying the planet while he maintains a huge carbon footprint. How different is it to claim the Dem’s policies are driving us to economic armageddon then continue to work a job that pays in U.S. currency, and continue to pay a mortgage on real estate denominated in U.S. currency? Again, I’m weighing in with a resounding “perhaps.” Williams could be right. I don’t have a strong argument against him, but if you believe he’s right then the best place to be for the next decades is somewhere other than here. Either put up, or put your head down and keep plugging away. Playing chicken little and running around like a freightened schoolgirl isn’t going to help you in either scenario.
Happy New Year, indeed!
Now that’s a response I’m looking for. I had an uncle-in-law who went Y2K crazy and now we just smirk at him. I’m not like that, but since this stuff is hardly covered by the media unlike Y2K and I’m no expert on monetary policy, etc. I am skeptical of the doomsday scenario, but I loathe this Admin. and the two prior for even putting this line of thinking on the table.
You should blog or something.
One other bit of advice; watch the rats. They have a knack for scurrying onto the lifeboats before the ship goes down. The super-wealthy can move their dollars to other currencies, and will if they think the end is near. One thing for sure, the super-wealthy won’t be left holding the bag if the Fed sinks the ship. Also, watch the big foreign investors that own a lot of U.S. real estate, and foreign-owned businesses with a lot of capital in the U.S. If you see them ditching their U.S. capital in favor of foreign alternatives the hull has been breached.