Hyperinflation Coming? Very Very Concerning...

[hakrjak]

I'm not disagreeing entirely with the prophets of doom, but I'm not exactly in lock step yet --

In order to have major inflation, don't we need to see wages increasing -- and wages have now been decreasing or staying about the same in this country for close to 10 years? The only people that seem to have gotten a big bump up (% wise) are the minimum wage earners, who get a raise every time the Feds step in every few years.

Most people in my company are still making less than we were making in 1999-2000. When you factor in how much wealth we've lost from our houses, 401k's, and other stock investments -- We are seeing a MAJOR loss in income. Also factor in the ridiculous double digit unemployment rates....

It seems to me that you can't have inflation if people aren't making more money to be able to afford to pay more for goods & services. When this happened in the 1970's, people were asking for raises at work, and they were getting them.

Cheers,

- Hakrjak

 

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[MJ DeMarco]

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?)

There are 2 ways to switch your cash holding from USD to another currency.

1) I have a foreign exchange brokerage account. I simply sell USD for another currency.

2) From my regular brokerage account, I can buy Currency ETF's ... like FXE, FXA, FXF ... if I buy FXE, it moves directly with the USD/EURO. These really should be used for longer holding periods since they are like any ETF and traded during normal market hours, unlike The FOREX market which is open 24/7. This makes them somewhat illiquid (remember that FOMC announcement that sent the dollar collapsing?) so if news happens after US Market Hours, you can't liquidate your ETF, but at a normal Forex account you can. This is why the $ETFS are more for longer defensive holds, not short trades.

Now, if the dollar collapses, decouples, or devalues, these currencies will rise.

For example, so today I get defensive:

$1 = $.74 EURO and I buy 74,000 EURO for $100,000

1 year from now after a dollar implosion and move back to USD where the rate is

$1 = .$10 EURO ... that 74 E / $100K USD would be worth $740,000.

Of course, this example works in reverse - if the dollar strengthens.

 

[MJ DeMarco]

but I'm not exactly in lock step yet --

Neither am I, but I want to be prepared.

When suddenly your girlfriend doesn't answer phone calls, buys new underwear, gets a new hairstyle, and works late at the office with that new "co-worker" --- you can make an educated forecast where things might be headed ... that's how I look at this situation. I don't like the writing on the wall. I hope I am wrong but again, I'd rather prepare for the worst and hope for the best.

 

[NoMoneyDown]

I'm not disagreeing entirely with the prophets of doom, but I'm not exactly in lock step yet --

In order to have major inflation, don't we need to see wages increasing -- and wages have now been decreasing or staying about the same in this country for close to 10 years? The only people that seem to have gotten a big bump up (% wise) are the minimum wage earners, who get a raise every time the Feds step in every few years.

Most people in my company are still making less than we were making in 1999-2000. When you factor in how much wealth we've lost from our houses, 401k's, and other stock investments -- We are seeing a MAJOR loss in income. Also factor in the ridiculous double digit unemployment rates....

It seems to me that you can't have inflation if people aren't making more money to be able to afford to pay more for goods & services. When this happened in the 1970's, people were asking for raises at work, and they were getting them.

Cheers,

- Hakrjak

I'm no economist, but this sounds like the ingredients for deflation.

 

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[andviv]

MJ, great info, thanks, I did not know that. Rep++

 

[andviv]

well, in a related topic, now if you want to leave the country you will need to pay a hefty tax, and soon will be limited to what countries you can move your money to, how does that play into your plans?

US Citizens Face Exit Tax | TaxLoopholes

 

[MJ DeMarco]

well, in a related topic, now if you want to leave the country you will need to pay a hefty tax, and soon will be limited to what countries you can move your money to, how does that play into your plans?

US Citizens Face Exit Tax | TaxLoopholes

Unfortunately the article is a bit sparse on the details/action items and is more of a hook for premium/upgrade service. :cuss:

 

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[hakrjak]

I'm no economist, but this sounds like the ingredients for deflation.

Well that's what I was kind of predicting.... Without wages increasing, you get deflation or stagflation.... Oil is being used as a key indicator here, but I don't think that it rings as true as some other commodities because it is seen by so many as being cheap at any price under $80-100 per barrel. Food has come down in price over the last year, PC & Technology prices continue to come down, Real Estate continues to come down, etc etc....

Cheers,

- Hakrjak

 

[MJ DeMarco]

Well here we go folks ...

This just turned from a DRIP to a POUR

Russia, China Call for Replacement to Dollar as World's Primary Reserve Currency

By Gleb Bryanski

MOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.

Calls for a rethink of the dollar's status as world's sole benchmark currency come amid concerns about its long-term value as the U.S. Federal Reserve moved to pump more than a trillion dollars of new cash into the ailing economy late Wednesday.

Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decisionmaking globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed.

"They (China) did not formally put forward their position for the G20 summit but unofficially they had distributed their paper regarding the same ideas (the need for the new currency)," the source told Reuters, speaking on condition of anonymity.

The source said the Chinese paper envisaged the International Monetary Fund's Special Drawing Rights (SDRs) being first assigned a role of a clearing currency on some transactions and then gradually becoming the main global reserve currency. "They said that the role of reserve currency should be given to SDR," the source said.

A U.N. panel of experts is also looking at using expanded SDRs, originally created by the International Monetary Fund in 1969, but now used mainly as an accounting unit within similar organisations as a new reserve currency instead of the dollar.

Currency specialist Avinash Persaud, a member of the U.N. panel, told a Reuters Funds Summit on Wednesday that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent's economic clout, which can be valued against other currencies and against those inside the basket.

The Russian source said Moscow was aware that the emergence of the new global currency would not happen overnight and said its goal was to initiate a discussion about it at the G20 summit in London on April 2.

The source said that India did not object to the discussion but was not prepared to take the lead. The source said South Korea and South Africa backed the idea, while developed nations were not "allergic" to it.

"We are not waiting for everyone to say: 'How beautifully it has all been formulated, let's subscribe to it'," the source said. "The main idea is to start a discussion about it."

Russia holds about half of its reserves, the world's third-largest, in dollars, with the rest in euros and pounds. Prime Minister Vladimir Putin has called on reserve currency issuers to show more financial discipline.

Finance Minister Alexei Kudrin told reporters on the sidelines of the G20 finance ministers meeting that it would take up to 30 years to create a new super-currency, suggesting there was no unity in Russia on the issue.

President Dmitry Medvedev's top economic aide and G20 sherpa Arkady Dvorkovich is behind the Kremlin's G20 proposals, made public one day after Kudrin returned from England. (Reporting by Gleb Bryanski; editing by Mike Dolan/Patrick Graham)

China backs talks on dollar as reserve -Russian source | Currencies | Reuters

 

[Rawr]

Well here we go folks ...

This just turned from a DRIP to a POUR

Russia, China Call for Replacement to Dollar as World's Primary Reserve Currency


China backs talks on dollar as reserve -Russian source | Currencies | Reuters

I might as well copy/past my sentiments from the thread on LP.

This is scarier than anything we've had yet folks. Not to sound crazy but Russia and China have been waiting for a chance to become #1 superpowers for a while now.

 

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[Kung Fu Steve]

... :smxE: ... the collapse of the United States as the dominant world power in our life time...?

Some people would say no I'm sure... I wonder how discussions were during the fall of the Roman Empire...? Are we doomed to repeat the past?

Are we just to be seen as we see "third world" countries now?

Maybe someone can start a thread on money and how to deal with this shift if it does happen?

I think about my businesses and how they are structured... having long term contracts seemed like such a good idea in the beginning, if this economy takes a huge dive do I need to start sending people to collections? ... or if hyperinflation is the case, how would I be able to produce the income to pay the business's bills with said long term contracts?

I.E. someone is signed up for 2 years at $100.00 a month. The value of the dollar drops so dramatically that instead of paying $100 a month for lights, it costs $1,000 a month. Is this a possibility I should be ready for? I guess I'm too young to understand the bigger picture - would someone mind explaining it? :smx4:

 

[MJ DeMarco]

I find it disturbing that our broken government (both parties) have put us into a position where our enemies could destroy us from within without firing a single bullet. Sun Tzu The Art of War ...

 

[hatterasguy]

A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government.
Thomas Jefferson

 

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[hakrjak]

So somebody explain this for those of us who got a C- or less in economics class... If the Dollar is replaced as the reserve currency of world -- How does that hurt us? The Euro is not the World's reserve currency now, but it doesn't seem to hurt them at all?

Cheers,

- Hakrjak

 

[hatterasguy]

Than all the governments holding our currancy would dump it, causing pre WW2 Germany kind of inflation. IE a loaf of bread would cost $50k or $500k dollars.

It would be fun, lots of fun, lets put it that way.

OTOH I think this is Russian hot air blowing, like they have been doing lately. China is simply trying to scare us because they are Chinese and trying to protect there investment. Anyone who has done business with the Chinese knows how they operate. Only the Indians are harder to deal with.


At the moment Russia is a paper tiger; they are broke, and in far more serious trouble than we are. China needs us far more than we need them. China cannot grow without a major consumer nation to devour there products, we are the only nation that can do that. We however with a bit of pain can replace China, if they forced a showdown it would hurt for a bit, but we would come out better than they would.

Also don't forget the Chinese government is putting down a lot of protests, and having massive problems of there own. They are trying to keep the lid on there own pressure cooker. They know they are going to have to go through a regime change in order to get where they want to go, the argument seems to be when and how.

 

[Jonleehacker]

I find it disturbing that our broken government (both parties) have put us into a position where our enemies could destroy us from within without firing a single bullet. Sun Tzu The Art of War ...

That's it exactly, but it isn't the government's fault. It's the people that demand governments to make moves that cause the minimum amount of discomfort. Whereas doing what is right will often cause a lot of people pain.

The current bailout is a perfect example. What's best is to allow a free market to sort out the mess, but gov steps in and writes checks to minimize and postpone the pain of the problem. Eventually, all debts must be paid, just like with personal credit, delay only compounds the effect.

 

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[MJ DeMarco]

That's it exactly, but it isn't the government's fault. It's the people that demand governments to make moves that cause the minimum amount of discomfort. Whereas doing what is right will often cause a lot of people pain.

The current bailout is a perfect example. What's best is to allow a free market to sort out the mess, but gov steps in and writes checks to minimize and postpone the pain of the problem. Eventually, all debts must be paid, just like with personal credit, delay only compounds the effect.

Agreed, and that is another topic unto itself. I like the investment prospects of your country as you cited mayy posts above.

 

[hatterasguy]

I still think the US is the best country to invest in.

 

[imirza]

I do not think we will see a Dollar collapse or hyperinflation anytime soon (maybe ever). But here is what I would do. I would find an asset class that is inverse to the Dollar and get long that asset using massive leverage.

Examples -

1) During times of hyperinflation, real estate is likely to go up. Assume the dollar drops 500% in 1 year (unrealistic but for the sake of argument lets assume this). I would think real estate at the very least will double if the dollar loses 80% of its value. So I would leverage into real estate. Using $100,000 I would put 90 day contracts on $10 million worth of real estate and flip it for profit within 90 days prior to closing on it. I figure conservatively in this 90 day period, real estate will increase 20-25%. $10 million would be $12 -12.5 million. That's a $2-2.5 million profit.If I did this just twice in 1 year, I would profit $4-5 million. Even with an 80% drop in the Dollar, that's a $800k-$1mil profit in real terms in 1 year. So I have taken $100k and turned it into $800k-$1 mil in 1 year and made myself much wealthier in the process despite an 80% drop in the Dollar.

2) Gold (and precious metals in general) is likely to increase in value. Assume gold only doubles with an 80% drop in the Dollar. I would get long gold contracts using 20-1 leverage. $100k controlling $2 million of gold. That $2 mil will be $4 mil in 1 year. That is
a $2 mil profit or $400k in real terms. So I have taken $100k and turned it into $400k in a year. I am much wealthier in real terms despite an 80% drop in the Dollar.

So my strategy for beating hyperinflation or a Dollar collapse would be to find an asset class that will trade inverse to the Dollar and use massive leverage to get long that asset.

 

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[randallg99]

I might as well copy/past my sentiments from the thread on LP.

This is scarier than anything we've had yet folks. Not to sound crazy but Russia and China have been waiting for a chance to become #1 superpowers for a while now.

this bicker and banter has been going on for decades and the talk is cheap.

would you seriously consider holding rubles instead of dollars? I mean really... any knowledge about Russian politics or economy makes this a moot issue....

China has the US by the balls indeed as mentioned in this thread but the double edged sword is that they cannot and will not drop their commitment to the USTs because the US needs the funding to keep China's economy steaming along. In no way shape or form will the world gravitate towards a communist controlled currency. this is a very dead issue

remember when Iraq wanted to shift their oil platform from $ to Euro? Iran, too. Many others joined the chant but the us$ has remained as the world's safe haven since most economies are entirely dependent upon the US economy.

even Canada is highly dependent on US economy whether they like it or not.... the energy boom in the past decade has been a phenomenal run for the loonie, but at the end of the day even the bitter anti American cannuck has a few greenbacks in his pocket.

just like equities, only bet with lunch money and play the trades and not long term plays. Since inflation seems to be inevitable (finally, the obvious surfaces) then gold is the best defensive play.

 

[max momo]

Interesting post.

I too think the US is still the place to invest and that is what I’ve done. Like my relatives before me I will continue to keep our republic strong.

That said, the warning signs have rung true for a number of years now. I first picked up with the bickering over the Washington Accord in 1999. The SNAFU of 911 and consecutive bubbles in the Nasdaq and housing, fomented by US fiscal policy (such as it is). My clarion call went out on RD (among other places) in 2003 when I saw major fractures in the bond and derivative markets. Things have played out ghastly as expected.

Since I have heeded the warning signs, my family and I are in relatively good shape. Loaded on provisions, metals and cash and able to take advantage of deals as they appear.

In this thread I read many of you really perk up. I have been reading some of your posts for years, and see a new timbre, tone and hue..

So - my question to the board is – WHY NOW?

What was that event, or series of event, that opened your eyes or caused you to look through a different lens?

Thanks.

 

[dnuge3]

Interesting things to point out though, even if it is from January.
What Companies Are Actually Doing Well? - Economix Blog - NYTimes.com

More Recent Feb
U.S. consumer prices rose in February - Stocks & economy- msnbc.com

There are a few other articles out there describing some more positive news, or rather, not as bad. The recession is a deep one but economic indicators and figures are painting a more optimistic picture as we work ourselves closer to the end of this year. I am not all that worried about Russia and China. The reason being China's economy is too closely tied into ours to pose any real threat and Russia it's history precedes itself. I will again interject that whats really killing us right now is the constant stream of doom and gloom. If we can only move away from that and focus more on the positives. So one can only hope, I suppose.

 

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[MJ DeMarco]

Just posted this in the other thread as well ... FT.com / Asia-Pacific - China calls for new reserve currency

 

[MJ DeMarco]

So somebody explain this for those of us who got a C- or less in economics class... If the Dollar is replaced as the reserve currency of world -- How does that hurt us? The Euro is not the World's reserve currency now, but it doesn't seem to hurt them at all?

Cheers,

- Hakrjak

Sorry missed this ... if this occurs, the demand for US treasuries will plummet. In other words, we won't be able to finance our debt and the budgets that are proposed.

So the natural response to the lack of debtors is to raise interest rates to attract capital. If interest rates rise, you will see what we've been discussing in this thread.

 

[Bobo]

At the risk of sounding Tinfoil Hattish...

For a few years now I've looked at the changing demographics and polarization across America and my conclusion is that a collapse is less likely than a split.

I'm not talking civil war, if 2/3 of the states request a Constitutional Convention and decide they really don't care to remain part of the United States and 3/4 of the State Legislatures are willing to ratify that then the United States ...isn't.

Sound ridiculous? Look at Europe. They have kept Rand McNally in business since the collapse of the Soviet Empire. Russia's re-emergence might keep them busy for the next decade.

So why do I think this is likely?

Our discussion in the "not my fault" thread touches on this. The ENTIRE country does not have systemic and dramatic financial woes (home values well below the mortgage value, high unemploymnet, energy shortages, etc). The cultural schism between deeply red and deeply blue states is also dramatic. Leaving aside which side you are on, I think most Obama fans viewed Bush as the worst president in history and most who supported Bush view Obama as the worst case scenario.

Right now, the 'right' in this country is disorganized and scared to death that record taxes, record inflation, record immigration and an unprecedented swing toward a socialist model is upon us. That demographic is in disarray now but that is not likely to remain the case.

When the Anarchists plan a million man demonstration but well, y'know, nobody in the group was all that great at scheduling and things fizzle it is no great shock. Not so when we are talking about Reagan Republicans.

I'm not sure how that will shake out but I expect to have a front row seat here in Dallas because Texas would likely lead the charge for a reorganization.

OK, I know - tinfoil hat, right? Why? Read Article V. Think it over. A split like that takes a catalyst, we may have just hit that tipping point. The 2008 Electoral map suggests that you can't get 39 states to agree but dig into the numbers a bit, look at the 04 map. There is a huge swath in the center that is significantly different ideologically than either of the coasts.

That center may be supporting both coasts before long... but how long will it take before they get sick of it? 39 isn't that many when you look at the map.

By the way - the food, energy and natural resources reside in the center....

 

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[CardinalsFan]

hey guys I just found and read this post from yesterday on the Morgan Stanley Global Economic Forum: Morgan Stanley - Global Economic Forum

it has some good info and a lot of numbers about what the Fed and Treasury have been doing and its affects on the economy.

here is a little preview:

"The huge positive impact of the Fed’s actions on rates, mortgage rates being of particular importance, set against the lack of traction or organizational progress in other key initiatives and a mixed performance across risk markets, with weakness outside of equities, after the prior major bear market rallies in most areas came as the near-term economic outlook continued to deteriorate, with severe weakness in claims and the early regional manufacturing surveys pointing to miserable results for the upcoming employment and ISM reports. "


its a long read but if you guys give it a look, let me know what you think

 

[MJ DeMarco]

US backing for world currency stuns markets - Telegraph

 

[Kung Fu Steve]

MJ can you explain a little more in depth what this really means?

Is this why gas went up 15 cents since last night? I think I understand, but what I understand is that this is a very serious situation which would involve a major shift in the world powers... am I wrong?

 

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[hakrjak]

By the way - the food, energy and natural resources reside in the center....

I like where your head is at Bobo... but we know that the Feds would do all they could to keep that from happening just like last time -- Because when the states with all the industry that are making all the money (And paying all the taxes) try to leave the Union, there is nobody left to pay the taxes, and you have a big problem on your hands.

- Hakrjak

 

[kurtyordy]

another domino has fallen

A 'Copper Standard' for the world's currency system? - Telegraph