Hyperinflation Coming? Very Very Concerning...

[jaytrader43]

Right now it could be either. The government is acting like Jim Jones with your tax money in order to keep confidence [bailouts, etc], therefore keeping the economy afloat...for now. Depending on what happens with job losses and the rest of the world economy, it will be either

If the world loses confidence in the US Dollar, hyper inflation will kick in, as people will try to exit the currency into whatever else is in demand [Euro, Gold, Silver, Food]. That's what is happening to Jamaica now, people [me included] get out of the Jamaican currency into others so our dollar chart looks like a water slide. That will lead to more people switching out turning it into a cycle of hyperinflation. However, the only way this could happen to the USD is if it is no longer the reserve currency.

tl;dr : Stop printing so much money.

Deflation will happen if the job losses continue and spending power contracts, forcing prices down and putting manufacturers out of business. This seems more deadly to the USA now, because interest rates are practically 0%, so the only way they can cut deflation is massive government spending, which is only a temporary fix.

The US Government needs to let the markets do their jobs and fix the economy through a painful contraction. Better now than later.

 

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[hakrjak]

The markets are all jazzed today because we only lost 611,000 jobs this week instead of 633,000 last week or whatever.... (That's still a HELL of a lot jobs to lose, by the way...)

But the way I see it -- Companies have completely trimmed all the fat... All that's left to trim at this point is muscle, so of course you're going to see fewer job cuts from now on... Unless all companies start going completely out of business...

Cheers,

- Hakrjak

 

[jaytrader43]

The markets are all jazzed today because we only lost 611,000 jobs this week instead of 633,000 last week or whatever.... (That's still a HELL of a lot jobs to lose, by the way...)

But the way I see it -- Companies have completely trimmed all the fat... All that's left to trim at this point is muscle, so of course you're going to see fewer job cuts from now on... Unless all companies start going completely out of business...

Cheers,

- Hakrjak

But with so many job losses, companies will go out of business as the spending power contracts.

 

[Edge]

The markets are all jazzed today because we only lost 611,000 jobs this week instead of 633,000 last week or whatever.... (That's still a HELL of a lot jobs to lose, by the way...)

But the way I see it -- Companies have completely trimmed all the fat... All that's left to trim at this point is muscle, so of course you're going to see fewer job cuts from now on... Unless all companies start going completely out of business...

Cheers,

- Hakrjak

Especially since last week was a shortened holiday work week for a lot of companies. Hard to get laid off when the HR dept is shut down for Easter/Good Friday or Passover.

So 633,000 over 5 days compared to 611,000 over 4 days....I don't think the downward spiral has let up.

Also, the second largest US mall owner (General Growth) filed bankruptcy and IYR, the commercial real estate ETF goes up over 4%.

General Growth files historic real estate bankruptcy - Yahoo! Finance

Yes, I am pouting because I lost money today. :smx4:

 

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[kurtyordy]

Another thread is unraveling

AFP: China has 'canceled US credit card': lawmaker

 

[randallg99]

can't help but sing to myself "mother how do you think they'll drop the bomb.... "


2 schools of thought - 1. who the hell has been buying treasuries? (is the Fed buying them and reselling them to themselves???) and 2. China has to be moving their money into something else, but what? US equities? I doubt it but following that money can possibly be profitable.

China can afford to curtail their exports by proportionately eliminating their imports to sustain their economy. This is a luxury now envied by USA.

 

[andviv]

China can afford to curtail their exports by proportionately eliminating their imports to sustain their economy.

Really? Interesting perspective. For what I understood, if/when they do this their unemployment will go up way more than what is acceptable and they will have a huge social issue at hand.

 

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[MJ DeMarco]

Another thread is unraveling

AFP: China has 'canceled US credit card': lawmaker

As I mentioned above, when there is a lack of buyer's for US Treasuries, interest rates will NEED to rise.

 

[kidgas]

Seems to me that the Fed can simply by up all the long Treasuries they want and monetize the debt. Now the Fed has control of both short and long term interest rates. Normally, interest rates would have to rise, but now the government (ala the Fed) is the buyer of last resort.

 

[hatterasguy]

On the plus side its going to force the feds to spend less.

The flip side is double digit inflation is just around the corner, with double digit interest rates. Anyone remember 14% home mortages? Well if you don't you'll get to see them real soon.

 

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[MJ DeMarco]

The Canadian dollar is kicking some a$$, glad I bought some!!

 

[kurtyordy]

As I mentioned above, when there is a lack of buyer's for US Treasuries, interest rates will NEED to rise.

Here is an article explaining what trickery was involved in holding the rates low up till now.

http://www.nytimes.com/2009/05/04/business/economy/04debt.html?_r=1&hpw

What the fed always seems to underestimate is the strength of the market. The market will seek the proper rate that the market drives.

It will just take one auction where a large portion of the treasuries are not purchased to send the rate through the roof overnight. That is how tenuous the situation is.

For newbies- does all this have you a little frightened? Are you wondering if you even stand a chance against all these market forces? Well you should. IMHO, we can benefit from this eventual reality, but he have to take the proper steps. Below is what I would recommend, but don't take my word for it, do the research yourself.

1. If I own 100k property free and clear and in 5 years it is worth 1 million due to inflation, all I have done is keep up with inflation. If I own 5 properties at 100k at 20% down. My five properties have gone from 500k to 5 million, so I have beaten inflation and used the power of inflation to increase my wealth. Instead of turning 100k in to 1 mill, I turned 100k into 4.5 mill. The same strategy can be applied to currency, commodity, or anything that will inflate and have demand in the inflated economy.

2. I choose real estate because of the cashflow potential. Unless you can afford payments on 500k in loans until you see the inflation boom happen, you need to be looking at cashflow.

a. Fix the rates. What will drive inflation is 10%, 15%, or even 20% rates. There are people on this forum old enough to remember those realities. Money was not always loaned out at almost free. If you don't, interest increase will negate much of your inflation hedge. Even if rates dip a bit further, lock the rates now, because I believe they will come up with a vengeance. The possibility of saving 1% to the risk of losing 10% is not worth the gamble IMHO.

b. This is very important. Make sure the props cashflow now! Don't buy hoping inflation of rents will help you cover your nut. A tenants bill of rights determining rent increase % is not too far fetched an idea. Bear in mind, big brother is becoming more and more active in protecting the masses from themselves. To that end, if the property is already cashflowing, you will have some wiggle room to adjust for interference. If you are betting on rent increases and they do not happen, where do you have to go then?

This all may or may not be the next depression. Under the real estate inflation plan, even if hyper inflation does not happen, and you cashflow then you have no worries. You just increased your net worth. If it does happen, you really increased your net worth.

Either way, the key is not to get bogged down worrying and wringing our hands. Even if we are the ammo bunker building types (which I am not) this should not be your only plan. We are witnessing a time of potential wealth building unseen since the depression. My challenge to you it to get out in front and ride the wave exponentially rather than letting it crash on top of you, crushing you in the mayhem.

The major risk of this plan is if the deflation experts are correct. If that happens and rents drop dramatically, you may have difficulty covering your expenses. I am of the opinion that this reality is not what we will experience, but you need to be aware of the other side of the coin. Like I said before I started this rant, do your own research. Opinions are a dime a dozen, but facts are where the money is made.

 

[andviv]

1. If I own 100k property free and clear and in 5 years it is worth 1 million due to inflation, all I have done is keep up with inflation. If I own 5 properties at 100k at 20% down. My five properties have gone from 500k to 5 million, so I have beaten inflation and used the power of inflation to increase my wealth. Instead of turning 100k in to 1 mill, I turned 100k into 4.5 mill. The same strategy can be applied to currency, commodity, or anything that will inflate and have demand in the inflated economy.

I used to think this was the way to go. But when you read the fine print you notice that banks can call your loan at any time and for any reason, and inflation like this will surely make the banks call the loans to renegotiate your terms. Not saying this WILL happen, just making sure people understand this feature so you don't bank on just this as your plan.

P.S. Kurt, tried to give you rep++ but seems I did that recently and can't yet. I owe you one.

 

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[kurtyordy]

I used to think this was the way to go. But when you read the fine print you notice that banks can call your loan at any time and for any reason, and inflation like this will surely make the banks call the loans to renegotiate your terms. Not saying this WILL happen, just making sure people understand this feature so you don't bank on just this as your plan.

P.S. Kurt, tried to give you rep++ but seems I did that recently and can't yet. I owe you one.

Is this for L.O.C.'s or for mortgages? I had heard the former, not the latter. I will pull out my recent mort docs and check it out.

And thanks, I will hold you to it lol

 

[MJ DeMarco]

Not sure anyone has noticed ... but the dollar has severely weakened against commodity rich nations (AUS, CAN) plus commodity costs have risen in recent days. SLV (Silver) and DBA (Agri) and other commodities (OIL) are approaching new short term highs. With the dollar weakness and these commodity costs higher, the dollar has lost a lot of value and I'm keeping my eye on it .... very very concerning, like the thread title states.

 

[hakrjak]

Not sure anyone has noticed ... but the dollar has severely weakened against commodity rich nations (AUS, CAN) plus commodity costs have risen in recent days. SLV (Silver) and DBA (Agri) and other commodities (OIL) are approaching new short term highs. With the dollar weakness and these commodity costs higher, the dollar has lost a lot of value and I'm keeping my eye on it .... very very concerning, like the thread title states.

It seems that commodity prices inside the US are deflating though, atleast from what I see when I go to the supermarket.... Normally from a weak dollar, I'd expect to see prices rising rapidly, but I'm not seeing that. Gas too... Cars are always cheaper than they've been in years. Housing is obviously cheaper than it's been in a decade in most areas, etc...

Cheers,

- Hakrjak

 

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[MJ DeMarco]

It seems that commodity prices inside the US are deflating though, atleast from what I see when I go to the supermarket.... Normally from a weak dollar, I'd expect to see prices rising rapidly, but I'm not seeing that. Gas too... Cars are always cheaper than they've been in years. Housing is obviously cheaper than it's been in a decade in most areas, etc...

Cheers,

- Hakrjak

I can't say the same here. Seems like everything is more expensive. Hot Dog buns used to be 89 cents. Now they want $1.69. :smxB:

 

[kurtyordy]

It seems that commodity prices inside the US are deflating though, atleast from what I see when I go to the supermarket.... Normally from a weak dollar, I'd expect to see prices rising rapidly, but I'm not seeing that. Gas too... Cars are always cheaper than they've been in years. Housing is obviously cheaper than it's been in a decade in most areas, etc...

Cheers,

- Hakrjak

it is like the ocean before the tsunami. the water draws down for some time, and makes you feel nice and safe collecting seashells. Before you know it, you are washed away. The water is starting to come back up, better get out of the ocean.

 

[hakrjak]

Well in Econ 101 back in the college days they always warned that deflation is much worse than inflation, so if we're about to get some inflation happening -- I guess we should count our blessings

The nice thing would be for us to all get our salaries doubled, and then be paying back these mortgages & debts we have with inflated currency. Would instantly cut our debts in about 1/2. --

The way to play the game if you are really predicting massive inflation is to buy as many houses as you can right now, and incur as much good debt as possible. You can either pay off the mortgages and collect inflated rents easily once the hyper inflation hits, or you can sell the properties for hyper inflated prices!

Cheers,

- Hakrjak

 

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[randallg99]

The way to play the game if you are really predicting massive inflation is to buy as many houses as you can right now, and incur as much good debt as possible. You can either pay off the mortgages and collect inflated rents easily once the hyper inflation hits, or you can sell the properties for hyper inflated prices!

Cheers,

- Hakrjak

bingo.

on macro scale, this is exactly why ben bernanke is trying to keep the rates down as low as possible while issuing massive amounts of debt.

in our worlds, I couldn't have put it in better terms. rep+

 

[AroundTheWorld]

Yea... I've been chewing on this idea for quite some time. I do think that hyper-inflation is a possibility in the future.

Someone recently posted a link to an article about investments and how they performed during the Germany hyperinflation. It was pretty interesting. For a time, this strategy worked out nicely for investors.

However, when it came to housing specifically:

The government put a freeze on rental rates. This made it difficult for property owners.

Even in the owner was able to pay the debt off, they often remortgaged the property (after the new currency was issued) because they needed cash so much.

 

[hakrjak]

With our current government that would be a big risk. Since they have employed most of Jimmy Carter's economic team, that gave us the gas price fixing of the 1970's -- I could totally see them fixing housing & rent prices if things started to shoot up. They'd go back to the well and use poor people (Who are being taken advantage by those evil people with money!) as their excuse to take government control of yet another industry.

Cheers,

- Hakrjak

 

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[Edge]

Max_Momo - where are you??

We need a bond expert to explain to us why what happened in the auctions today is very, very concerning...

 

[kidgas]

It seems to me that investors demand for higher long term interest rates underlies an increasing concern for inflation going forward. I would be looking toward inflationary hedges when planning investment strategy.

 

[MJ DeMarco]

Very Very Concerning...

China's central bank frets over Fed bond purchases
Treasury yields hit five-month high after auction

 

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[BryanC]

Yeah, I see this stuff going on and realize we're headed for disaster on the economic front. It's sad to see that this little institution has the power to kill our currency like this but I guess it is what it is.

I don't know if any of you agree with the Austrian Economist on this but, they're all saying a World Currency is inevitable. I can see how it would work because each country on the planet is a part of the UN and IMF currency system.

What is your guy's thoughts on the possibility of a world currency?

 

[hakrjak]

Wonder if it's time to lock in rate son some of these ARMs that have been floating down nicely for the past couple years.

Cheers,

- Hakrjak

 

[Russ H]

What is your guy's thoughts on the possibility of a world currency?

World Currency = Currency that everyone, worldwide, acknowledges as the benchmark and trades their currency with

Currently, that would be the US dollar.

In the future? Who knows. Important thing is to generate income/assets so that you live well and are happy no matter what your currency is. Living in a place (or having your currency in a country) that has low inflation is obviously an important element of this.

Doesn't matter how much you make/have if inflation takes it all away.

-Russ H.

 

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[andviv]

I saw this image today... Dow/Gold ratio. Source: chartoftheday.com

Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 9.2 ounces of gold to “buy the Dow.†This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the Dow is down 79% from its 1999 peak and the scale of the current two-month rally has not distinguished it from the many bear market rallies that have occurred over the past decade.

 

[MJ DeMarco]

I saw this image today... Dow/Gold ratio. Source: chartoftheday.com

Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 9.2 ounces of gold to “buy the Dow.†This is considerably less that the 44.8 ounces it took back in 1999. When priced in gold, the Dow is down 79% from its 1999 peak and the scale of the current two-month rally has not distinguished it from the many bear market rallies that have occurred over the past decade.

And the dollar to buy that Gold is devaluing. It's a dual prong attack ... higher commodities, dollar devaluation -- when bread costs $5, what is that called? INFLATION.