|I recently wrote an article showing how the U.S. True Money Supply (TMS) appeared to be growing at a hyperbolic rate [see here], and that gold was also on a hyperbolic course…Hyperbolic growth in the quantity of money ends with hyperinflation… [and] both TMS and the dollar price of gold are pointing to a hyperinflationary outcome. This article explains why this might be so. Words: 764
|| So says Alasdair Macleod (www.FinanceAndEconomics.org) in edited excerpts from his original article*.
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has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Macleod goes on to say, in part:
There are five apocalyptic engines pushing the growth in US money supply:
- the government’s budget deficit,
- the government’s debt trap,
- the financial condition of the banks,
- the delusion of Keynesian solutions and, lastly,
- simple compounding arithmetic.
1. The U.S. government collects only 55c in taxes for every dollar spent. It is relying on economic recovery to reduce welfare payments and increase tax revenue to close the gap. This prospect is receding and establishment economists advise against cutting government spending.
2. The US government’s debt trap is concealed by the exceptionally low interest cost of funding. The only reason this cost is not higher is the Fed maintains a zero interest rate policy. However, as surely as night follows day, price inflation will start rising as monetary inflation feeds through, forcing the Fed to allow interest rates to rise long before any economic recovery occurs. The rise in interest costs will escalate the budget deficit, which will be financed, directly or indirectly by further monetary expansion.
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3. The banks’ balance sheets are considerably weaker than stated, because of unrealised losses on assets, loan collateral and write-downs on their own debt. Real estate collateral write-downs alone probably exceed bank equity of $1,400bn. On an honest analysis the US commercial banks are collectively bankrupt. To simply survive the banks have no alternative other than to reduce loan exposure while requiring continuing monetary support from the Fed.
4. Keynesian economists, aware of the banks’ difficulties are terrified of bank credit contraction. For this reason, the macroeconomic establishment strongly promotes the expansion of narrow money to buy off a deflationary depression.
5. As the purchasing power of the dollar falls – the result of past monetary expansion – [even] more dollars have to be issued to cover increased government costs. Past inflation becomes a compounding factor behind price rises.
Essentially, money will be printed at an accelerating rate to buy time rather than face the three realities of:
- government default,
- an over-indebted private sector and
- a bankrupt banking system.
The Keynesians are belatedly aware of the dangers and see no alternative to printing as much money as is required to defer these problems. The monetarists in the central banks are hesitant, torn between Keynesian fears of outright deflation and worries about the rate of monetary expansion so far. [Nevertheless], the history of monetary inflation confirms that once it enters a hyperbolic phase, it is almost impossible to stop. Armchair critics have derided the stupidity of central banks and economists in past hyperinflations, such as in Weimar Germany, Argentina and Zimbabwe.
The truth is that when hyperinflation has become visible at the price level, it has already gone past the point of no return at the monetary level.
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1. 2012: More Money-printing Leading to Accelerating Inflation, Rising Interest Rates & Then U.S. Debt Crisis! Got Gold?
Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660
2. Alf Field’s 7 “D’s” of the Developing Disaster Revisited
When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 – devolution.] Words: 1520
3. Why Hyperinflation is Not Likely – Let Alone Imminent
The National Inflation Association (NIA) has just posted an article* which makes a number of interesting arguments for the advent of hyperinflation and, while I agree with the conclusion that we could potentially face such an event, I see it as just one of a few possible outcomes. Let me comment on the specific points in the NIA article. Words: 1666
4. Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices
The Federal Reserve has a dual mandate set by Congress of maximum employment and stable prices. During Chairman Bernanke’s most recent press conference he indicated that the Federal Reserve has done a better job of maintaining price stability while falling short of fostering maximum employment. [As such,] we believe the Federal Reserve will continue to increase the monetary base and weaken the dollar as long as unemployment remains elevated. While the economy (measured by real GDP) and the unemployment rate have not benefited from a substantial increase in the monetary base, the price of gold and silver have benefited from money printing. We believe this statement is quite important for monetary policy and for investors. [Let us explain further.] Words: 388
5. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field
Everyone must be wondering where this “unprecedented global financial crisis”, (the World Bank’s words), is heading. What follows, for what they are worth, are my cogitations on this crisis. Words: 1641
A final or total catastrophe of the currency system will occur as a result of unlimited money printing that will lead to hyperinflation. Stock markets will benefit temporarily from this QE [but we expect that the] markets will fall 90% against gold in the next few years. The correction in the precious metals [will] likely [soon] be over and we should see the metals going to new highs in 2012. Words: 450
Question: What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks? Answer: An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. [Let me explain further.] Words: 1049