Tuesday, January 14, 2014

Why the Hyper-Inflationists Have Been Wrong, Are Still Wrong and Will Continue to be Wrong

The hyperinflation argument is completely worn out. The proponents of such nonsense have been pitching it for five years now and the Fed continues to print, print, print.


The deflation which began in earnest in 2008 is still staring them in the face.

Look at it this way: When the Fed prints, it creates debt. That's their job and they're working overtime. On the other side of the equation are the countless numbers of homes (millions of them) that went into foreclosure or are on their way to forclosure and all the mortgages that are still being paid down. That last bunch constitutes the bulk, and that is destroying debt.

The Fed is promoting bubbles in stocks and college loans, car loans and any other loans they can find because many, many consumers and businesses are paying down debt and not incurring any more.

If the Fed keeps its foot to the pedal at $75B or $100B or more per month, it's because there's at least that much debt being eradicated at the same time, so they're trying to keep up.

Remember, in our fiat debt-based system, if there is no debt, there is no money and that's why the Fed keeps printing. And if interest rates rise too much, that's game over because then nobody could afford debt and most debtors would, facing higher rates they cannot pay, default.

The Fed has itself backed nicely into a corner. They need to keep the US dollar strong, but at the same time, they'd like inflation at 2-3%, and GDP growth at 3-4%, which they consider equilibrium.

They've managed to keep the dollar stable, even higher lately, but that plays against their inflation and growth desires.

They can't have it all and deflation is winning and will keep winning as long as people have choices and there's no wage increases. If a loaf of bread doubles in price, people will eat half a loaf. Yep, some will starve, which lowers consumption, and thus, lowers again, the price of a loaf of bread.

The Fed is totally screwed with ZIRP and QE, which, the evidence is beginning to prove out, cannot exist at the same time, lest you get a result of zero growth (which is probably what we've really had the past five years in sum when you take out all of the BS hedonics and other magnificent calculations).

They're completely screwed. If I could borrow at 0.25%, like the banks, I'd do it all day long and pay it back just as quickly. So, what does the Fed gain from that? They created cheap money, and just as fast as it was borrowed, it was repaid.

Businesses are also self-funding, with stock buybacks and their own debt issuance, which, if you've read the Creature from Jekyll Island, the bankers hate, because corporate stock and debt is like having your own currency, and the banks make nothing off that.

The deflation will continue as long as interest rates remain low, like a 10-year under 3.5%, which is likely to remain that way for at least another year or two or three.

So, enjoy the deflation. Buy land, ammo, guns, vehicles, any reliable alternative energy source (wind, solar, deep cycle batteries, etc.), non-GMO seeds and opt out of the debt system. As long as the deflationary regime remains intact, you'll be fine. When it ends, you'll be prepared to survive without money.


Stocks did a serious about-face on Tuesday, based upon... hmmm, maybe the bogus retail sales data for December, which showed modest increases only by revising November sales down.

That's how it works in the present regime of making it up as the economy rolls along. While most retailers reported dismal holiday sales, we're supposed to believe the government's claim that everything was rosy in December. When the store, and later, entire malls, begin closing down, then what will they say? Go ahead, guess. They'll probably blame the weathre or threat of terrorist attacks or some other nonsense.

Also boosting stocks was, maybe, fourth quarter results from JP Morgan (JPM) and Wells-Fargo (WFC), two of the nation's mega-banks, which are supposedly flush with cash and making money hand over fist, even though their filings are so opaque and farcical, nobody really believes them at all, except those brokers and traders who make money by selling stocks to retail investors.

The banks aren't as unhealthy as they were in 2008, but, by no means are they the cash-cows we're led to believe.

Deflation, over-supply and an aging demographic will continue to erode the economy. And that ACA (Obamacare) isn't helping, either.

DOW 16,373.86, +115.92 (+0.71%)
NASDAQ 4,183.02, +69.71 (+1.69%)
S&P 1,838.88, +19.68 (+1.08%)
10-Yr Note 98.95, -0.15 (-0.15%) Yield: 2.87%
NASDAQ Volume 1.88 Bil
NYSE Volume 3.33 Bil
Combined NYSE & NASDAQ Advance - Decline: 4132-1568
Combined NYSE & NASDAQ New highs - New lows: 255-35
WTI crude oil: 92.59, +0.79
Gold: 1,245.40, -5.70
Silver: 20.28, 0.103
Corn: 431.50, -3.00

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