19 Nov 2013

Hyperinflation – Are We There Yet?

Among the alternative financial press (the so-called bloggers of finance) there is a renewed buzz regarding a slowly unfolding crisis. Many believe we are near an inflection point.
The fear is certainly justified. Money or credit creation is now exponential. The US Federal Reserve is on a path toward monetizing anything and everything, while the European Central Bank is about to unleash its own bond buying program.
Japan is equally a basket case. Paving the way for long-discussed direct monetization of equities is becoming evermore a reality. The US central bank, together with its Japanese counterpart, is monetizing an unprecedented $125 billion in direct bond buying.
Despite shrinking deficits, there is no way either central bank can taper these purchases without pricking the latest in yet another series of asset bubbles. Both central banks have morphed into politically controlled arms of their respective Treasuries.

Getting the Inflation Wish

Meanwhile, equities are trading at all time highs. We are back to dot-com IPO's by which well-meaning companies ultimately take all the risk, helping Wall Street make money for nothing without risk of failure.
Home prices have soared back from the lows experienced 5 years ago. At the same time, nearly fifty percent of all home purchases made with cash in the 3rd quarter of 2013 in the US are acquired by private equity and hedge funds.
All the while, inflation is considered tame by mainstream consensus. Basically every major economic data point or indicator is so completely manipulated that there is no wonder that most investors cannot see the true state of risk.
Gold and silver continue to suffer from "painted-tape syndrome". This is a situation in which overnight sell orders have routinely broken the CME trading platform on at least three occasions in the previous 6 months. These moves occur surrounding zero economic or financial developments.
Recently, the US Census Bureau has become embroiled with scandal. Among such scandal is that, as long suspected, the data collected for the all important unemployment rate was found to be grossly manipulated around the last presidential election.
We are at the critical juncture where the population is split mainly between the unknowing and those whose paycheck depends on not knowing. The rest shake their heads and prepare for the worst.

We Have Been Here Before

History repeats in large cycles. The relatively short interval of these cheap credit drive super cycles is evidence that the system is now spinning out of control.
While the alternative media has long pointed out the unsustainability of the current world financial system, we are now witnessing the likes of very carefully orchestrated, albeit political, posturing. Such posturing takes the form of warnings coming from some of the larger investment firms and institutions.
The fact that the larger voices document their positions in this way could be an early sign of the end of confidence.

The Inflection Point

We are going to hit the monetization inflection point at some point soon - if we haven't already. The likely trigger could be indirect; it could even be something small. A bank failure or crisis in China (happening now) or a smaller conflict will be enough to push confidence over the edge.
The conduit for money velocity will be the Treasury, via the Federal Reserve. Government spending on its own will bid up prices for its own economic and political survival.
It is harrowing that modern systems, hopelessly lacking in redundancy and yet working on the surface, are treading on so much fragility.

History Rhymes

All hyperinflations hinged on the budget deficit point of no return, where more than 50% of annual deficits are monetized directly or half spending more than half of what was collected. The Obama administration's recent budget requests contain $2.902 trillion in receipts and $3.803 trillion in outlays for a deficit of $901 billion, or around 24% of government spending.
The closer we get, the more important it is to hold various assets as insurance - precious metals being an obvious choice - high on the list.

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