Hyperinflation Coming? Very Very Concerning...

[MJ DeMarco]

Today is a very concerning day although it might not seem like it.

As I write this, the Dow is down 68 pts. Big deal huh?

That's not the issue; it's what is happening everywhere ... as leading indicators to my worse economic fears, this isn't good.

1) Oil spiked back over $50
2) Gold spiked higher and all other commodities
3) The Dollar continues its plunge ... lost 7% of it's value in the last 2 days.
4) Combined with the dollar losses and the commodity spikes, our money just lost a lot of its value.
5) China expressing concerns over Treasuries
6) FOMC decides to buy LT Treasuries (Causing dollar to collapse)
7) US Government continues to spend money unfettered.

The economic scenario, which I have my antennae tuned-in for, is a dollar collapse and hyperinflation. The aforementioned are some concerning leading indicators.

At B&P, we had a nice little round table on the economy and I mentioned that the dollar collapse wouldn't happen overnight -- it would be akin to boiling a frog one degree at a time -- and that it would start in China with them losing faith in US Treasuries.

Yet, I don't see anyone in the MSM (even financial sites) talking about this.

It might be time for some serious defensive moves.

 

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[CactusWren]

My thoughts were along the same lines yesterday. Hearing about China's trillion dollars in treasuries.

So what are the defensive moves in a hyperinflationary economy with a collapsed dollar.

Seems like the least amount of cash possible (in dollars) and hard assets such as real estate. Any other ideas?

 

[MJ DeMarco]

Commodities, hard assets, non-dollar denominated assets, and yes, I think even real estate might be somewhat defensive, although not entirely. I think a pure defense would be commodities like Gold, Silver, Wheat ... if the world decouples from the dollar, or even minimally our credit rating is lowered, we're screwed. China has us by the balls.

 

[TC2]

I am no economy experts, but I do see some warning signs.

1. The way GOV handle AIG case.
2. Retail raise the price in order to cover their cost to import goods from China
3. Less people buying at small local shops.
4. Big chain stores are expending slowly while they are still borrowing money from bank.
5. Don't really heard anything about Big 3 auto makers and their spending on tax payer's money.
6. More small business are closing down.
7. Too many 2008 new cars at dealers
8. More unfinished houses are out there that drop the properties values
9. My parents keep asking me when to buy US Dollar.

 

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[dnuge3]

True, but those are all signs of a deep recession. Considering the globalization of our current society, the impact of this recession is compounded. The spike in oil could be attributed to an increased demand as long as this price jump proves to remain mostly stable. When we see an increase in demand we see and increase in production. An increase in the price of oil, if it does not jump enormously, could presage a sign of a beginning recovery. This also proves to hold true in the increase in commodities. Yet, I would say that gold has seen an artificial increase in price because we are seeing increased reporting about its resiliency in tough economic times. So more people are viewing it as the "safe-haven" to invest in to ride through this storm. Couple that with the fact the Fed has bought 300 billion in longer-term Treasurys, and has pumped more than 1.2 trillion into the economy, the after affects of decrease in value of the dollar and the like, are inevitable.

I would not necessarily agree that spending money is a bad thing. The reason being that is does ultimately help an economy to recovery. The problem actually seems to lie within the MSM itself. Turning to any 24/7 news station all you hear is about the gloom and the doom. Just consider how that could impact a nation's psyche? A lot of what we are seeing currently, is based in the psychology of doom and gloom and how this impacts consumer confidence and spending. The truth is, there are a lot of sectors out there that are doing well. Psychology plays a very important role in why this is lasting and seems as deep as it is. We are not really given a break, nor do we hear about what is doing well. People are so concerned with the DOW and that's about it.

The DOW, and all the trading markets, are ultimately just perceived value of a company and not "real" value. So, yes, when things are bad, this perceived value is strongly affected. But think about companies that are still profitable and doing well, yet their value is completely decimated in the markets. What does one think would happen to the people's view and confidence in that company? The quick answer is, they think it is doing horribly. So yes, there are plenty of factors that could be viewed with a great deal of apprehension concerning the economy, but consider this, the IMF forecasts that the US should see an end to the recession in late 2009 and its recovery beginning in 2010. Though this has been reported before, it has become rather consistent recently. Also, we have seen a bit of a stabilization in the markets as of late. Prices, gains, and drops are no where near as volatile as they have been. So it seems that if the MSM and people themselves, begin to research and look into and report on the GOOD news and not the gloom and doom, we might begin to feel at ease again.

P.s. Those of you who are holding back from starting your own business, now is not that time. It is actually a great time to start for you will be ahead of the curve when everything corrects itself. Therefore, you will see the most profits.

 

[MJ DeMarco]

Prepare for the worst, hope for the best!

 

[Jonleehacker]

Here's a quote from an "alert" sent by the head of my investment club over these events:

I am sending this alert out as today we have witnessed a rather startling development in the never ending push by authorities to get credit moving through the financial system. The surprise move by the Federal Reserve to buy 300 billion of long term treasuries over the next six months had an immediate ripple effect throughout the globe sending the U.S. dollar into a free fall, interest rates substantially lower and stock prices soaring.

Why is this such a big deal? It means the U.S. will literally be a buyer of its own debt and reduces the probability of not being able to finance the mammoth stimulus package recently unveiled. This dramatic move also says a lot about the depths of the economic problems and could signal an inflationary spike coming out the recession.

...

A lower dollar is positive for commodities and the world economy in general as investors move out of a safe haven and back into risk investments. In short today's announcement is a longer term inflationary negative and a short term positive for the markets. Much will be said and debated about this unprecedented move. For today at least it had the desired affect...

 

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[NoMoneyDown]

Here is an interesting take of one person's view of the current economic collapse in the USA to that of the USSR 17 years ago, and the analogies thereof.

 

[Russ H]

Has anyone looked into what's happening in China right now?

They're the only big nation that is experiencing sustained double digit (or close to it) growth.

Long term solution:

Become Chinese.

Assuming the Chinese take over the world's currency in the next 20 years-- and could also become the #1 world power militarily-- how do we become Chinese?

Please, no conspiracy theories. I'm being serious-- from an entrepreneur's perspective, how does one become invaluable/indispensable/irreplaceable to the Chinese?

-Russ H.

 

[andviv]

MJ, this is one of those topics I really have no clue how to react to.

Here is my dilemma:

Hyperinflation, so your cash is worth less and less every day (or every hour, like it happened in Argentina a few years back). The dollar collapses.
What can you do about it then?
Buy milk and bread with gold coins? Trade your wheat for drinking water?
I can go to my backyard and start digging to hide my food cans meanwhile. For how long should I store food? Plan for what? 3 weeks? 3 months? 3 years?


OK, so let's assume that this will happen and the conclusion is to move to another country, there is nothing we can do here for now... but where? If we are in bad shape here, the rest of the world is in an even worse shape. Heck, a 10% unemployment rate would be a reason to celebrate in any third-world country (oops, sorry, "countries-in-development").

China stops buying our paper... what do they do then? They have rising unemployment and a social problem growing back home...
Europe's financial system is, for what I understand, in a 50-to-1 leverage position that is killing them, worse than the U.S.
Africa, Latin America, most of Asia is poor anyway... and Japan is going nowhere, just like in the past 20 years...

So I feel like there is nothing that I could realistically do today.

I really really have no clue how to react to this...

this is very confusing, no?

 

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[andviv]

Has anyone looked into what's happening in China right now?

They're the only big nation that is experiencing sustained double digit (or close to it) growth.

I remember reading about China's situation in another thread...
http://www.thefastlanetomillions.com/economy-finance-news/19410-chinas-hard-landing.html

 

[bflbob]

I agree, Andres. How do you trade it?

"I'll give you a dollar today, if you'll agree to give me $1,000 in a year."
I mean who's going to take you up on something like that?

Especially if they think that the dollar you just gave them will only be worth $.001 next year.

Or would I have to give you $1,000 now to get $1,000 back in a year, since both values would decrease equally?

 

[Jonleehacker]

OK, so let's assume that this will happen and the conclusion is to move to another country, there is nothing we can do here for now... but where? If we are in bad shape here, the rest of the world is in an even worse shape. Heck, a 10% unemployment rate would be a reason to celebrate in any third-world country (oops, sorry, "countries-in-development").

Moving (or at least your money) to another country is a good strategy for this situation. Yes, some countries will be pulled down with the US dollar, but I'd offer Canada, maybe I'm a bit biased? as an example.

Some points of strength:

• 15 years of budget surpluses that were used to pay down national debts, national balance sheets in decent shape
• largely commodity driven economy that will do well as a hedge to US dollar due to huge demand from China
• banks in best shape of top 20 nations

move to Canada, amass a fortune, buy US assets at rock bottom prices, just bring warm clothing :cheers:

 

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[andviv]

this is the other article I read about China's situation...
Hard Landing In China? - Forbes.com

So they are expecting growth of ~7%

In conclusion, the risk of a hard landing in China is sharply rising. A deceleration in the Chinese growth rate to 7% in 2009--just a notch above a 6% hard landing--is highly likely, and an even worse outcome cannot be ruled out at this point.

The global economy is already headed toward a recession. A hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America, as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters. The sharp recent fall in commodity prices and the near collapse of the Baltic Freight index are clear signals that Chinese and global demand for commodities and industrial inputs is sharply falling. Thus, global growth--at market prices--will be close to zero in Q3 of 2008, likely negative in Q4 of 2009 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction in 2009.

If China stops buying commodities at the same pace, what is expected about prices then?

 

[bflbob]

move to Canada, amass a fortune, buy US assets at rock bottom prices, just bring warm clothing

Can't we just get you guys to buy us???

 

[Jonleehacker]

Can't we just get you guys to buy us???

I'm going to write to my local politician and see if I can convince him to put in a low-ball offer for Arizona.

 

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[Rawr]

Moving (or at least your money) to another country is a good strategy for this situation. Yes, some countries will be pulled down with the US dollar, but I'd offer Canada, maybe I'm a bit biased? as an example.

Some points of strength:

• 15 years of budget surpluses that were used to pay down national debts, national balance sheets in decent shape
• largely commodity driven economy that will do well as a hedge to US dollar due to huge demand from China
• banks in best shape of top 20 nations

move to Canada, amass a fortune, buy US assets at rock bottom prices, just bring warm clothing :cheers:

Uh huh! Apparently I was a step ahead this whole time!

Seriously though, do not move to Canada unless you like paying close to 60% taxes before another 19% on credit cards.

And the best part - most banks only have the 19% credit card option - which coincidentally might be the reason Canada could be doing better at the moment.

 

[Jonleehacker]

Uh huh! Apparently I was a step ahead this whole time!

Seriously though, do not move to Canada unless you like paying close to 60% taxes before another 19% on credit cards.

And the best part - most banks only have the 19% credit card option - which coincidentally might be the reason Canada could be doing better at the moment.

mmm, not sure where you're getting your info.

In Alberta where I live, there is no provincial sales tax, completely free medical, and personal tax rates of about 25% (mind you my income comes in the form of dividends from a company).

In general taxes here may be slightly higher, especially in some provinces, but compared to hyper inflation, I'm sure the ROI would be positive.

 

[Kung Fu Steve]

Prepare for the worst, hope for the best!

I posted a while back about this and I think hakrjak was the only person who looked at it :smxB:.

There is a book that just came out called Emergency: This book will save your life! by Neil Strauss. Definitely a great read. It talks about how to get a second citizenship, how to protect your money and assets, how to be able to cross borders without being stopped. He talks a lot about what is currently going on in the economy and makes references towards the holocaust.

Not that it's the same thing but the reason why so many Jews did not leave Germany was because they weren't allowed to. It was locked down. In a country like ours, they could just suspend air travel and lock down the borders and then NO ONE could get in! ... or out....

Pick this book up, I'm almost done with it, they go over almost exactly how to do all of this stuff as well as survival tips and all sorts of things.

 

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[AroundTheWorld]

Commodities, hard assets, non-dollar denominated assets, and yes, I think even real estate might be somewhat defensive, although not entirely. I think a pure defense would be commodities like Gold, Silver, Wheat ... if the world decouples from the dollar, or even minimally our credit rating is lowered, we're screwed. China has us by the balls.

Thank you for the concrete ideas. This is why this forum is so cool.

Moving (or at least your money) to another country is a good strategy for this situation. Yes, some countries will be pulled down with the US dollar, but I'd offer Canada, maybe I'm a bit biased? as an example.

I read recently that Jim Rogers is buying farmland in Canada. Not a coincidence. He is out of the US and into commodities..... at the source. Farmland.

Hyperinflation is something that we have been preparing for for the last couple of years. I tried, unsuccessfully to bring the topic up in this thread http://www.thefastlanetomillions.co...n/9336-survive-thrive-all-economic-times.html Mostly it was a FAIL as it just turned into a match :chatter: between me and Easy..... but there are a few Hyperinflation gems in there.

 

[AroundTheWorld]

Not that it's the same thing but the reason why so many Jews did not leave Germany was because they weren't allowed to. It was locked down. In a country like ours, they could just suspend air travel and lock down the borders and then NO ONE could get in! ... or out....

Thanks for the book tip. Wanna book swap? Sending you an email.

The kids are learning about the Holocaust. We have been watching a few videos on the subject. The same thing occurred to Hubby and I. If we had been there during that time..... how would we have found a way to get out of the country? Those that couldn't figure out how to get out where just sitting ducks. So horrible and I would never want to be in that situation with my family.

 

[randallg99]

lots of thoughts.... maybe time for me to post all of my mundane thoughts on the pessimistic thread....

Today is a very concerning day although it might not seem like it.
... The economic scenario, which I have my antennae tuned-in for, is a dollar collapse and hyperinflation. The aforementioned are some concerning leading indicators...It might be time for some serious defensive moves.

of all people, I am taking a little more aggressive stance. I am buying baskets of banks now in hopes that we'll see the TARP program revised to eliminate the bad debt from the books making the banks instanteously profitable again. (yes, I am buying those pigs in lipstick - only with lunch money)

It's really the financial sector that rules the monetary universe whether we like it or not and that's why I've focused so much time on it

So the kind of concern/fear/sentiment this thread started is exactly what's been expected by those who've been on the sidelines. Mainstream is scared. The media is circling this banking sector fiasco like vultures but reality is US$ is still king vs. rest of the world. No other sovereignty has the capacity to handle the debt the way the US does regardless of how well other economies are doing. For example, Panama's economy is still red hot, but there is no way they can handle the amount of debt. Same with China's infrastructure (besides, can we even trust the Chinese gov't to hold debt, let alone pay us back?) Europe? about to implode (if there is any place for concern, then its Europe as they're about to experience Great Depression part II - unemployment is already in teens in many of the countries) South America? oy. What about Dubai? Middle East? buh-bye Dubai.

And as bad as hyperinflation is to the consumer, the much larger concern really was deflation which has a more profound affect on the economy as a whole.

And as much as I ridicule our politicians, I actually have a little bit of faith in Bernanke... he's taking the stand to liquify the banking sector and to avoid deflation at all costs because the ramifications would be devestating (as the great depression was) And the reasons the great depression occurred was mainly because of an isolationist policy and a credit freeze that lasted for a very long period of time both of which Bernanke has adamantly addressed.

Prepare for the worst, hope for the best!

Amen.

Has anyone looked into what's happening in China right now?

They're the only big nation that is experiencing sustained double digit (or close to it) growth.

Long term solution:
Please, no conspiracy theories. I'm being serious-- from an entrepreneur's perspective, how does one become invaluable/indispensable/irreplaceable to the Chinese?

-Russ H.

Shanghai commercial vacancy rate is 30%. Mass migration back to the farms at alarming rates and Chinese govt is putting heat on Americans to make sure their debts are paid... there have already been problems with US treasury auctions when things were 'looking up' temporarily in US markets.... Chinese have power to make the auctions dicey when they don't show up. Demand for UST's now are very high, but as US govt needs more, there won't be as many options (and there will be a time the US needs to go back into the kitty as tax revenues are going to plummet....)

also - someone mentioned Jim Rogers- I once had a lot of respect for him but his antics and ulterior motives seem to lean towards him selling books..

Lastly as a suggestion: there have been a few tremendous articles in the Atlantic Monthly recently summarizing these topics in this thread that are worthy of reading (or buying an online subscription to get access... I think it's only $12 for probably some of the best journalism and unbiased insight out there)

 

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[kurtyordy]

Not that it's the same thing but the reason why so many Jews did not leave Germany was because they weren't allowed to. It was locked down. In a country like ours, they could just suspend air travel and lock down the borders and then NO ONE could get in! ... or out....

Think soviet union. We are not too far away my friends.

 

[andviv]

so what are you doing about it?

 

[imirza]

Currently I do not see any signs of hyperinflation and I do not think there will be hyperinflation. The FED is printing money but, printing money alone will not cause hyperinflation. The FED can print 100 TRILLION Dollars and it still won't cause hyperinflation. Why ? Because printing money alone will not increase the velocity of money . "The velocity of money is the average frequency with which a unit of money is spent in a specific period of time."

Now lets take a look at what is currently occurring. The FED is injecting money into the banks in exchange for their illiquid assets. So the money has gone to the banks. But the money is not being used by the banks to create new loans. Lending has dried up. Consumers and businesses are not gaining access to this money printed. So their is no velocity of money. Without velocity, their cannot be inflation or hyperinflation. The banks are for the most part insolvent or under capitalized and are basically using this FED injection to recapitalize. So unless the banks start lending out this money, there will not be any inflation let alone hyperinflation. Banks are not lending because they still expect further losses and are building up reserves. Obviously if the banks stop losing money on their depreciating assets, and the FED continues to flood the banks with money then, the risk of hyperinflation increases.

The US Dollar is not going to collapse anytime soon. The Dollar is the worlds reserve currency. Other currencies are tied to the Dollar. Unless the world chooses a new reserve currency, the Dollar will continue to hold its value. More so, other countries like the European ones are in worse shape than ours. Their currencies are falling in value against the dollar. In times of crisis, people across the globe move into dollars. Thus the sharp rise in the Dollar since the middle of last year. The FED is printing money which one would think will lead to a Dollar collapse. But it will not because the rest of the world will print money too, to get out of this financial mess. The rest of the world simply follows US economic policy. Everyone is in trouble and we are all tied together. So a Dollar collapse does not make any logical sense at this stage unless we see a massive dumping of US Treasuries and a move away from the Dollar as the Worlds reserve currency. Both these events are unlikely to occur in the near future.

Hyperinflation should be the least of our concerns. Deflation should be the primary concern. What we are currently faced with is declining asset prices or deflation. The FED is extremely worried about deflation and thus their inclination towards flooding money into the system which at this point they are unable to get past the banks. Debt destruction and deflation is what we are faced with and until we destroy the majority of debt that was created over the last decade, I would not worry about hyperinflation and a dollar collapse.

 

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[randallg99]

And as bad as hyperinflation is to the consumer, the much larger concern really was deflation which has a more profound affect on the economy as a whole.

Hyperinflation should be the least of our concerns. Deflation should be the primary concern. What we are currently faced with is declining asset prices or deflation.

great minds think alike.... but I used deflation in the past context only because I think we are beyond that, or do you see it still being an issue going forward? My thoughts are consumer prices have stablized which appear to a large indicator

I am putting my money where my mouth is. At one point or another the flood of new money is going to have to break the dam.... there will be a new bubble at a fast and furious pace but where it will be will baffles me. So the easiest way for me to make a few bucks in the next few years is riding the financial sector.

so what are you doing about it?

buying boat loads of bank stocks at these prices. In several years, they will be at least 10,000% higher.... so much liquidity is hitting the sector that the gov't is already nationalizing the banks without actually nationalizing them. at least that's what my crystal ball says when it doesn't fog up

 

[hatterasguy]

Inflation will probably rise for a bit on the upswing of this cycle, but the Fed's are just going to have to increase interest rates for a bit to tame it.


If my numbers are right we have about $40T worth of currancy already in circulation, or at least it was until this mess started. Printing and shooting $1.2T into the system won't cause hyperinflation. A bit of inflation sure, but were not going to be seeing 500,000 dollar bills. Such as this collectable Reichs Mark.

I'd be more concnerned about how mortgage rates are going to react when we start to come out of this later this year.

 

[Dave]

Not to get into a political debate, but Ron Paul has been screaming from
the rooftops about this very thing for "years" now. The media convieniently
cut him off when things get hot though. Hmmmm, makes ya think huh?

I agree... the house of cards is nearing collapse.

I honestly think it's all planned. The bankers have been trying to get a
central world bank forever.

Problem... reaction... solution

What's the easiest way to accomplish that? Collapse the dollar and then
"rescue" everyone with a nice shiny new central currency.

Interesting times we live in eh?.

- Dave

 

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[MJ DeMarco]

The US Dollar is not going to collapse anytime soon. The Dollar is the worlds reserve currency.

Your analysis, albeit sound, goes right down the drain when you remove its basis -- the USD is the reserve currency. If the "world" decides the USD is no longer the reserve, then what? Of course, that process wouldn't happen overnight ... it would be a steady flow of drips into a bucket that has a tipping point. As someone who is heavily into cash and fixed income investments, I have to be cognizant of the "drips" ... before they tip the bucket. These items (higher commodities, China voicing concerns) are all drips to a potential collapse. Before the collapse, the USD will most likely have its credit rating dropped and then the decouple as the reserve.

As for what I'm doing? Commodities/Agri and non USD currency. Defensive only ... not looking to make a killing.

 

[andviv]

Not to get into a political debate, but

you just did, lol!!!


**************************


MJ, when you say non USD currency, how does that work? (completely ignorant about this... do you open a bank account in a foregin country? buy the paper and stash is under your mattress? bury it under the swimming pool?)