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Old December 21st, 2006 #1
James Woroble Jr.
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Default USD - 07 a final year? - Get ready for 30%+ annual INFLATION!

USD - 07 a final year?

Chris Laird
www.PrudentSquirrel.com
Dec 21, 2006

This article is going to discuss the growing world discontent with the USD. Previously, although the US fiscal and trade deficits were in danger territory, the US trade partners were willing to continue to accumulate USD foreign reserves as they sold masses of everything under the Sun to the US.

They benefited from massive economic growth, and let the USD hot money circulate in their economies as washed hot money (hot money comes in as USD and then is changed into local currency or lent out in local currency - this causes lending and asset bubbles locally, creating a seeming endless prosperity bubble until that comes to the inevitable end and they have massive inflation or asset bubble collapses). Ultimately this hot money issue will decide the USD fate anyway, but there are sinister looking issues, particularly with China, that may cause a USD crisis in 07.

Effect of a serious USD drop on your savings

As far as the USD is concerned, there is a growing consensus that our trade partners are getting tired of accumulating the USD. If this becomes severe enough, the USD will experience a rapid fall in value on the order of over 30% in a year. The US stock and bond markets would collapse, and US interest rates rise into the teens at the least. The value of your 401k savings and other cash type accounts would drop 30% in USD terms based on the rising prices of everything, and another 30 to 50% in nominal USD value as well as the stock and bond markets collapsed. Net USD/real value of losses to your 401ks? Very possibly over 60% - in one year.

If the USD devalues heavily in 07, we could be talking losses on the order of 60% net real value of USD financial assets. I get the impression that most people only think their dollar accounts would devalue modestly - perhaps 10% if the USD were to devalue heavily in 07. They are mistaken. The value would drop more on the order of what I just calculated in real terms - in any case probably over 50%. The losses would be from a lower USD value combined with dropping stock and bond market values - things which every 401k and other retirement account is based on.

The US and every trade partner is hoping the USD could gradually devalue. They will work together for that end. That may happen. However, there is a serious level of risk the USD decline could get out of control. Central banks don't have all the cards. Markets can panic and outrun central bank efforts to stabilize things.

That exact same calculus is understood by our trade partners and will affect their USD holdings in the same exact way. The only reason why the USD has held up so far is because our trade partners do indeed understand this calculus, and have been so far able to stem any serious USD mini crises. The problem is, at some point there will be one mini crisis that is not stemmed, then we look over the edge of the precipice. It would not all happen in one fell swoop, but, at the end of a year, we could easily see a net 50% loss of real value of any USD holding.

The present USD situation with China and the US arguing over revaluing the Yuan has the potential to be the crisis that finally is the USD's undoing. Particularly since the US Congress is probably going to go ahead with US trade sanctions on China. China will threaten to retaliate by dumping the USD- a kind of economic doomsday weapon. Whether they actually do that, to their own great harm, is not clear. But the latest crisis is very revealing on the dynamics we are looking at going into 07. China appears absolutely determined to stay the course, and not move much in the direction the US wants - they need millions of new jobs a year to deal with about 800 million poor and angry Chinese who have yet not benefited from their economic miracle. China considers their economic growth as central to resolving this. China is having 70,000 public demonstrations a year now. That number is rising as well.

Latest rumored USD mini crisis

Last week, there were meetings between Treasury Secretary Paulson and Fed Chair Bernanke, and other 'A' team US trade and banking representatives with China. This meeting resulted in a number of internet rumors and some verifiable comments that China is not giving in to US demands for a revalued Yuan/RMB. That is causing the US congress to get very mad, there are trade sanctions coming in 07. The Chinese evidently threatened to dump the USD - they have about a $trillion. Then a very interesting development - the Mid East oil nations stated they will be severely harmed by a collapsing USD if China dumps it. They threatened to embargo oil to China should they dump the USD. All of this shows how high the stakes are going into 07 for the USD - and how serious this USD situation is now. I think we can say, the USD situation is now at a crisis stage.

Formerly, the gold and other financial community has been tracking the financial mess the US has found itself in, with huge trade and fiscal deficits combined well over $1trillion a year. There has been so much written about this that people probably are saying 'you guys have been talking about this for years - and not much has happened!'

Well, I can say that, having tracked this issue closely now for years, we are at a definite turning point. The once 'far off' end of the USD is now at hand or at least very much at risk of happening. The recipe is now in place, irreconcilable differences between China and the US over their undervalued Yuan, and pending US trade sanctions with a bold Democratic US congress.

From what I have heard, when the Chinese floated their idea (threatened) to go ahead and actually dump the USD this last week, first the EU told them they would not sell them enough Euros. Then, the Mid East Oil nations said they will not sell China oil if they dump the USD. China, however is not the type of nation to like being dictated to. They won't let the US dictate to them with trade sanction threats, and they won't take any EU interference in this situation well either, nor will they take Arab oil hostility well either. Also, the moderate Arabs are concerned that a paralyzed US would leave them wide open to a hostile domineering Iran.

The problem China has is it cannot give much ground on the Yuan (their view), or else something worse they fear will happen to them -an economic contraction and millions of rampaging peasants who already feel the economic largess has bypassed them.

These factors add up to a very good chance that China will retaliate against the USD anyway in 07. I don't see them escaping from US trade sanctions this year, and the Chinese apparently believe they cannot do the things the US is demanding. So, somehow, this year, the Chinese may pull the plug on the USD.

Who will blame whom?

I don't see this happening in the first part of the year. First, it will take time for sanctions to be voted on, then Bush will probably consider vetoing them. Then congress needs enough votes to override a veto. And so on. But, then, after a lot of hyperbolae, and ranting in the press, by June or July, we could see an attack on the USD as the rest of the world with USD holdings gets scared. Then, even a minor move by China could tip the whole thing into chaos. Then who could blame whom? We might even see a speculator front run on the USD that tips the whole mess downward.

Some financial alternatives in this situation and some pros and cons

If I have already convinced you that the USD is in serious trouble in the coming year, then let us move to what-if scenarios about your savings.

Let us assume for the purpose of discussion that the USD devalued 30% in 07. What would happen?

First, I would like to point out that the EU has done financial war games relating to this. They did simulations involving derivatives, and found that if one or two huge hedge funds went insolvent, there would be financial panics in their respective stock markets due to forced liquidations. The same EU bankers have also stated that a precipitous drop in the USD would cause financial flight out of world stock and bond markets. There would be a huge financial panic and flight to safety. I am not going to go into all the many aspects of this but:

* Not only US stocks would crash, but likely most major stock markets due to financial flight and contagion. To see these as safe havens from a USD collapse is probably overblown.
* There would likely be derivatives panics as the value of the USD and other currencies fluctuated wildly and caused huge losses on these incredibly leveraged positions.
* There will be massive Foreign exchange volatility, chaos, and possibly restrictions.

Now, many of your USD accounts will have stocks, bonds and such. If the USD were to lose something on the order of 30% in a year, you will not only see prices of everything skyrocket but also see actual drops in the USD values of those stocks and bonds because investors will dump USD assets to escape the falling dollar. As I said, that will be a double hit on your USD accounts.

If the USD were not to fall to zero, (I doubt it will in one year) then stock accounts for real type assets such as gold stocks and energy will have a two phase reaction.

First, many of these will initially drop due to forced liquidations of various investors. However, eventually a flight to financial safety will force these back up.

Possible foreign exchange controls

However, if the USD were to eventually completely collapse, many USD accounts will be frozen and there will be foreign exchange controls. Meaning you will be forced to ride whatever the outcome of the USD becomes. If the situation got really bad, I believe many mines will be nationalized world wide - that is already happening anyway. A gold stock is not as safe as a gold coin. Of course, these can be confiscated too, and they have been in the US once already in the Great Depression when US gold coin was recalled by the US government so they could run big deficits.

However, anything can be attached by the government in an emergency, so, in a way, this point is moot. It is not likely a paid off house would be so confiscated though, or apartment building or some other real thing. If you were to buy one now, just find one in a non bubble market. There are many areas in the US and Canada that would apply here.

Any protective movements of USD accounts will have to be done in advance of these coming USD drops. That means you would have to be willing to forego some of the coming stock gains that all the financial newsletters and media say are still coming for the US stock market, and not have as much in actual stock accounts and such, but be more in liquidated and protected mode.

Paid off real assets in your actual possession

Now, I have written before about how I prefer something like gold bullion or other paid off real assets, a non bubble house, apartment building or something like this. Paid off assets should survive a real USD devaluation. Some people like the idea of owing money on these things, to take advantage of a devalued USD, then to pay off these with depreciated dollars. The problem is, should you find your income reduced/frozen and unable to make the payments on the mortgages, then you are still subject to losing the asset until you actually pay the thing off. I think borrowing money hoping to pay off in devalued dollars is a dangerous way to have a real asset. Better to just have a smaller one paid off without a mortgage. You can always live in it if you have to.

One other consideration is that real estate will appreciate in value in a serious USD crisis and the taxes will go up, but, compare that to having some stock account collapse by over 50%, and paid in USD that are now worth 30% or more less. There are No perfect solutions that cover all aspects of a currency collapse. One has to make some trade offs. Besides, even if the USD stabilizes, any capital gains will be taxed on financial accounts.

Euros

Of course, other alternatives would be buying Euros, or other currencies. This can be a stop gap alternative. Personally, I think most of these are still inferior to paid off assets in a currency crisis. The problem is, people still need some cash to pay bills during such a crisis, so one can't put all of their cash into real assets necessarily. So, one needs to balance the idea of having all real assets- (gold or silver or other PMs , a house, or other real thing that you actually own and have possession of.) and having some necessary cash type assets.

Bonds

US bonds will do terribly if there is a serious USD crisis. Interest rates will skyrocket and bonds will tank. Also there will be the co debasement of the USD value of those bonds.

Other nation's bonds will initially do well, but if they raise interest rates to compete with the weakening USD then their bonds will also drop considerably. If their economies fall into recession, their bonds will ultimately suffer as well. They could be a stop gap for the initial USD situation however.

Foreign stocks

The same goes for foreign stocks. Most foreign stocks are very dependent on the present status quo of the US/West centric economy. If the US stock market crashes, eventually that will spill over into foreign stocks as well. Most foreign nations are not well situated to do well economically should the USD system take a big hit. Their economies will slow badly and so will their stock markets. So these are not automatic havens from a serious USD crisis either.

And, resource stocks will be hit (perhaps except for PM stocks) because of declining economic demand for resources should there be a big economic slowdown in the US and consequently in the rest of the US trade partner world.

These are just some thoughts about what could happen if there is a serious USD crisis in 07. I am not an investment advisor, but a gold commentator.

The PrudentSquirrel newsletter is my macro economic gold commentary. Subscribers get up to date weekly issues on the latest news events that affect gold (and precious metals). Stop by and have a look.

Chris Laird
Editor in Chief

website: www.PrudentSquirrel.com
email: [email protected]
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Old December 21st, 2006 #2
James Woroble Jr.
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Thought...

If inflation runs at 30%... ARM mortgages will hit 32-37%!!!!!!!!!!!!
Lets call it 1/3 of the home's mortgage in interest per year as the home's market value plummets by 20%+ a year.

For those who see light at the end of the tunnel... ITS A FUCKING ONCOMING TRAIN!

Enjoy! This will be the last 'civilized' Christmas.
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Old December 22nd, 2006 #3
Konrad Jackson
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It is possible, yes. I thought so about 2006 too; possible, but we didn't know. 2007 could be the final year, or it could pass by like 2006. 2008 could see a crash as well, or not. We cannot say for sure, but we can point out that the tax-and-spend, borrow-and-spend economy has created rampant consumption, and private and national debt. And we can point out that the tech bubble was simply replaced by a real-estate bubble, through the printing and borrowing of dollars. And we can point out that the industrial base of the West has been eroded. These factors will lead to hardship once the bubble bursts. Could be next year.

Let's hope there is some conflict with Iran, causing them to sink a few ships in the Gulf with their robots. That might speed things up.
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Old December 22nd, 2006 #4
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Quote:
Originally Posted by James Woroble Jr.
Thought...

If inflation runs at 30%... ARM mortgages will hit 32-37%!!!!!!!!!!!!
There would be massive defaults , long before that level would ever be reached.
Just 12% would cause a disaster .
 
Old December 22nd, 2006 #5
James Woroble Jr.
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Quote:
Originally Posted by Itz_molecular
There would be massive defaults , long before that level would ever be reached.
Just 12% would cause a disaster .
I more than agree. In fact many respected (by me ) analysts have been stating for some time that if the Fed rate crosses 5.25 - 5.50% (7.0 - 7.50% mortgage rates) it would begin a systemic landslide in the real estate market.
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Old December 22nd, 2006 #6
James Woroble Jr.
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Quote:
Originally Posted by Konrad Jackson
Let's hope there is some conflict with Iran, causing them to sink a few ships in the Gulf with their robots. That might speed things up.
Yep! Like 'Yankee Jim' says... "Worse is better!" And i agree.
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Old December 22nd, 2006 #7
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If China won't budge on opening up its market on the timetable it agreed to for the WTO negotiations... Time for large tarriffs on Chinese goods in any area where US producers are competing with them.

That will set off hyperinflation in the US especially the way the fed measures it looking at mainly consumer products. Interest rates would then have to rise to probably over 10% to get inflation under control..

With housing people don't even look at the price of the house, they look at the monthly payments. Twice the interest rates means twice the payments. So the house could only sell for half as much.

China would eventually cave in and keep opening up things, so it could be wild swings in the stock and bond markets.
 
Old December 26th, 2006 #8
James Woroble Jr.
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Default Is This the Start of Hyperinflation? The Start of Capital Controls?

Is This the Start of Hyperinflation? The Start of Capital Controls?

--Jay Taylor

The U.S. dollar and its currency is rapidly becoming worthless, evidenced now by the need to start strong arming Americans to keep us from recognizing the metallic value in even the cheap coins our nation mandates us to use as a medium of exchange. Following is a quote from the U.S. Mint this past week, explaining why they are going to enforce a growing trend toward melting down coins. The currency buys considerably less than even the low value metals now in our coins, so here come the strong-armed tactics of a government with an inherently dishonest monetary policy.

“Effective today, the U.S. Mint has implemented an interim rule that makes it illegal to melt nickels and pennies, or to export them in mass quantities.” The rule also bans the exportation of the coins, beyond traveling with $5 worth and shipping up to $100 for legitimate purposes. The modern penny (made after 1982) is worth 1.73 cents with production costs included. The nickel, which is made of copper and nickel, is actually worth 8.34 cents when production costs are included. “Violators of these new regulations face up to a $10,000 fine, imprisonment of up to five years, or both.”

“We are taking this action because the Nation needs its coinage for commerce,” said Director Ed Moy in a statement. “We don't want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer. Replacing these coins would be an enormous cost to taxpayers.” One person suggested this past week that this could be the start of what is, in effect, a form of capital controls against the American people by their government. Our currency is so debased now that not even a debased penny is worth one cent. But our police state is determined to force us to honor their worthless paper money, so we had just better get used to it.

Or, Could Ian Gordon’s K-Winter Be Upon Us?

I spoke to my good friend Ian Gordon this past week, and as always, Ian is suggesting that the K-winter collapse is right around the corner. I suggested to Ian that I didn’t want to bite the dust again by getting rid of tangible assets only to watch hyperinflation unfold with my family and me not having enough money at the end of the day to buy a house or pay the rent. I told him that that is why I watch my IDW like a hawk. In discussing my IDW, we both agreed that the potential exists for a derivative crisis to get out of hand so that the President’s Plunge Protection Team—which of course includes Ben Bernanke and his fleet of high-speed printing-press equipped helicopters—could not respond in time to keep a chain of highly levered derivative instruments from toppling each other over with the speed of a roaring tsunami. I do think Ian has something there in that argument. He agrees that the Helicopter Man will print and print and print. Ian also agrees that this kind of abuse of the financial system by the Keynesians is delaying a stock market and economic collapse. And he thinks that some kind of derivative accident will sooner or later trigger the day of reckoning.

I have no disagreement with Ian on that score at all. But when will it happen? I don’t know the answer to that question and neither does anyone else, although Ian thinks it is very close. He told me he will be writing a great deal about all of this over the Christmas and New Year’s holidays. I am looking forward to reading it and perhaps sharing it with all of you. Actually, I would strongly advise you to visit Ian’s Web site, which is www.thelongwaveanalyst.ca. There is some excellent material on that site right now, but look for updates over the holiday season. But the haunting question for all of us is when will that day of reckoning come? My sense is that I do not want to be solely on the side of the deflation trade and then lose enormous amounts of purchasing power in the process. Yes, we have done well with our gold stocks. In fact, this year, gold and silver stocks are outperforming virtually all other categories with the one possible exception of our uranium stocks. But if we are heading into a hyperinflation, which I no longer think is impossible, gold is not usually the best asset to own, until the end of the crisis, when it takes on even more important monetary characteristics. Until we face that awful day of reckoning, I think I want to own some inflation hedges like silver, base metals, and uranium, as well as oil and gas. But owning some gold bullion and gold stocks is mandatory for either extreme inflation or deflation. In my view, both are possible, so we continue to watch our IDW. The latest reading is discussed below.

Money, Money Everywhere!

The following excerpts from Doug Noland latest weekly column. This just isn’t the kind of stuff you would be reading in a deflationary environment. If you wish, go to www.prudentbear.com/creditbubblebulletin.asp and read Doug’s entire and very excellent weekly missives.

“Bank Credit surged $42.9 billion last week (2-wk gain of $65.6bn) to a record $8.233 TN. Year-to-date, Bank Credit has expanded $727 billion, or 10.5% annualized. For the week, Securities Credit increased $5.7 billion. Loans & Leases jumped $37.3 billion, with a y-t-d gain of $550 billion (10.9% annualized). Commercial & Industrial (C&I) Loans have expanded at a 13.8% rate y-t-d. For the week, C&I loans were little changed, while Real Estate loans rose $12.0 billion. Real Estate loans have expanded at a 14.5% rate y-t-d. For the week, Consumer loans increased $5.0 billion, and Securities loans jumped $19.4 billion. Other loans added $0.9 billion. On the liability side, (previous M3 component) Large Time Deposits increased $1.2 billion.” Total Money Market Fund Assets, as reported by the Investment Company Institute, jumped $28.6 billion last week to $2.358 Trillion. Money Fund Assets have increased $301 billion y-t-d, or 15.5% annualized. It is also worth noting that Money Fund Assets have expanded at a 23.2% rate over the past 20 weeks. Total Commercial Paper increased $4.8 billion last week to $1.933 Trillion. Total CP is up $292 billion y-t-d, or 18.9% annualized. Total CP has expanded at a 21% rate over the past 20 weeks. Asset-backed Securities (ABS) issuance this week increased to $17 billion. Year-to-date total ABS issuance of $693 billion (tallied by JPMorgan) is running about 7.6% below 2005’s record pace, with 2006 Home Equity Loan ABS sales of $458 billion about 6% under comparable 2005. Also reported by JPMorgan, y-t-d US CDO (collateralized debt obligation) Issuance of $333 billion is running 80% ahead of 2005. Fed Foreign Holdings of Treasury, Agency Debt added $1.3 billion during the week to a record $1.713 Trillion (week of 12/06). “Custody” holdings were up $193.5 billion y-t-d, or 13.5% annualized. International reserve assets (excluding gold) - as accumulated by Bloomberg’s Alex Tanzi – were up $748 billion y-t-d (19.6% annualized) to a record $4.794 Trillion.
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Old December 26th, 2006 #9
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Isn't this similar to what happened to Germany -- pre WWII? I have stated this over and over that the jews are sucking the U.S. dry while they have non-homeless people running around in Israel, all fat and happy, with our money circulating amongst themselves in many banks throughout the world. In addition, they are stealing money from the Arabs by freezing all assets in the U.S. that they think are considered to be terrorists.

The jews are sucking everyone dry by any means while they become more powerful and have been for the last 100 years.
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Old December 26th, 2006 #10
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Quote:
Originally Posted by James Woroble Jr.
Thought...

If inflation runs at 30%... ARM mortgages will hit 32-37%!!!!!!!!!!!!
Lets call it 1/3 of the home's mortgage in interest per year as the home's market value plummets by 20%+ a year.

For those who see light at the end of the tunnel... ITS A FUCKING ONCOMING TRAIN!

Enjoy! This will be the last 'civilized' Christmas.

Section 32 laws would keep that from happening. Almost ALL arm loans are capped out at some rate almost never above 13% (not that its much better)

BUT

Commercial lending has NO usury laws to protect business owners. They will truly be fucked.
 
Old December 29th, 2006 #11
James Woroble Jr.
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Default What comes before 30%? -- 11.5%!

Tripping Over 11.5% Inflation

George Ure - www.urbansurvival.com
Wednesday December 27, 2006

There was an interesting email from my friend Roger Reynolds who publishes the great (and free) email advisory "Shame on Your Federal Reserve"

"1)Fundamentals: In his book about commodities, JIM ROGERS, repeats supply/demand time after time. So, what is the supply/demand for dollars with the current oil costs and import/export deficit??? THE DOLLAR MUST SOMEWHERE GIVE GROUND---DOESN'T IT??? What about the supply/demand for gold/silver/copper/uranium/lead/zinc/moly---has demand not been greater than supply??? When China is supposed to produce millions more cars next year--how can demand fall very far??? ALSO, GOLD HISTORICALLY DOES WELL WHEN THE INFLATION RATE IS ABOVE THE SHORT TERM INTEREST RATE. WE ALL KNOW THE "REAL" INFLATION RATE IS 8 TO 10 PERCENT, DON'T WE??? "

If you have recovered from eggnog overdoses, you'll remember that I pointed out yesterday that gold has gone up this year more than the Dow and silver lots more.. And, if we count back from the March 15 area mentioned for about a year in predictive linguistics runs from www.halfpasthuman.com, the 55-days average from market peak to crash, then we could very easily be in the vicinity of all-time highs right now.

---

It's with this in mind that we can scan the headlines and ask "Is inflation a really good thing, really bad thing, or about neutral?" Damn fine question. Warm up the coffee, this is a little complicated.

---

Inflation is a bad thing - a very bad thing - if you are on a fixed income. Two classes of people are being screwed by inflation which is running so far above "official government rates" as to be laughable. The retired military and the retired social security pensioners. Also, people on pensions which are tied to "official" cost of living numbers.



Inflation is a good thing if you are a borrower, though. You borrow expensive money and pay back with watered down money - deflated money.



In a balanced investment strategy, you try to maintain the actual purchasing power you had at the time you made an investment, plus a little actual gain. Do that, consistently, and you're a genius.

---

Government uses phony inflation numbers driven by specific measures of the money stocks (M1 and M2) but the broadest measure of the money supply, M3 was discontinued by the Federal Reserve back in March because it would scare the hell out of people.



The problem, monetarily, seems to me to boil down to this: Inflation (which you might estimate as being the relationship of the number of dollars in circulation compared with the value of available goods and services) is commonly thought of as having something to do with Gross Domestic Product versus cash money in circulation.



GDP

M1 = inflation.



The wholly fraudulent notion is that inflation relates to just cash. Of course, it doesn't. It relates to all effective money in circulation - and how fast it turns over and that fist number is M3 and the second is velocity.



Ignoring velocity of money to keep this simple, while M1 shows a very tame rate of increase lately, M3 is going through the roof, although you're not supposed to notice because the Fed knew this was coming and has hidden the numbers from public sight, lest we would all figure out the crookedness of the game.



Still, in the past few days, Bart over at NowandFutures.com has updated his (and John William's) work on M3B, a 99.9% or better estimation of what M3 would be if the Fed decided to be honest, and it show real M3.



Care to take a guess at what M3 inflation is running annualized right now? I'll make this easy for you:



11.5%



"Hmmm...that seems to be close to what my grocery bill has gone up, along with the power bills...how come government isn't telling us this?" Plausible deniability, pal.



Here's how the Big Con works. Say that you knew that money creation was slipping out of your control and that you could only influence how the economy developed by setting a few key interest rates. And suppose further than money is effectively created by non-government players who offer credit and creative financing to keep their games growing. "Are you talking about the housing industry, especially the sub primate guys and the big derivatives players who create loans out of air?" Duh. Yeah, the coffee is working.



OK, the second part of the Con is that most people have been slowly, but steadily renouncing the use of cash in favor of digidollars. Credit cards, etc.



Now, run up to the china board and write this down somewhere:

GDP/M1 = and approximation of government reported inflation. BUT



GDP/M3 (which is really digidollars) = an approximation of actual inflation.

See how this works? Government has deniability, as they would argue that they use M1, which would be fine if the real estate boyz and derivatives players weren't making money all day hand over fist through the process of loan creation. A splendid damn miracle. And government - having hidden M3 where it can't see daylight can argue "Ain't no measure of digidollar inflation...that's all speculative." Not in Texas, though. I see the proof at Brookshire's, Kroger's, Wal-Mart, Tractor Supply, just as you'll find it at Wynn-Dixie and Safeway.



So, now that you know that inflation (M3/digidollar basis) is going up 11.5%, how does the Dow look for the year? Let's pencil it out.



We start the year at call it 10,717 and we bump that up by 11.5% this week to just maintain purchasing power parity (PPP). That means the Dow's equivalent in digidollars at the beginning of the year could be argued to be in the vicinity of 11,949. Given the market's close yesterday and outlook for another run up today, let's say the Dow is really up for the year on a purchasing power basis about 3.9%.



On a PPP/digidollars basis, I'd argue that gold, starting from $516.60 would correct to $573.43 versus its $626.80 level at press time this morning. That's a 9.3% gain on a PPP/digidollar basis as of this morning.

---

Somehow I got off track. Let me get back on it by telling you (as I have told Peoplenomics subscribers for several years) that while the last Depression was arguably touched off by competitive tariffs, today's Second Great Depression is being set up one level upstream from direct tariffs by competitive currency devaluations.



Now, let's haul out some headlines to underscore how (thanks to the media not differentiating between PPP/digidollar inflation and M1 cash inflation) we could almost get the sense that the US is doing better than the rest of the world in efforts to contain inflation.



We look first at Japan. The headline there today is that the inflation rate increased in November and jobless numbers hit an 8-year low. Sounds sort of familiar, huh?



South Korea's inflation rate has increased in December.



Vietnam's inflation for the year is 6.6%



Serbia's Central Bank says inflation is below 7% now.



Inflation in Russia is running at 8.2% year to date.



On the other hand, China is looking at a 3% inflation rate for 2007 - pretty damn tame compared with US actual rates.



What's key here (and for subscribers why we watch the Global Index of multiple markets so closely) is that there is a huge competitive global inflation underway and when you read about inflation in the oil-rich Gulf Countries (where rents in some have gone up 80% since 2005) you can see clearly why OPEC doesn't have a problem raising its price. They are feeling the impacts of inflation which is robbing them of oil revenue purchasing power. They're screwed, in fact in PPP, if they don't raise oil prices!



As long as the competitive devaluations continue, a sort of economic equivalent to the music continues in musical chairs, everything is dandy. But, as soon as predictability ends, the world's going to be in a heap-o-trouble and you'll want a portfolio structured to insulate you from real declines in purchasing power, which is what investing is all about. Wealth preservation.



When the market goes up and gold goes up in tandem, think "Global competitive currency devaluations."
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Last edited by James Woroble Jr.; December 29th, 2006 at 09:02 AM.
 
Old December 29th, 2006 #12
James Woroble Jr.
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Quote:
Originally Posted by panzerfaust
Section 32 laws would keep that from happening. Almost ALL arm loans are capped out at some rate almost never above 13% (not that its much better)

BUT

Commercial lending has NO usury laws to protect business owners. They will truly be fucked.
As we are all accustomed to, you make a very good point.

I was vaguely aware of the usury ceiling you point out, however I was also aware historically that such laws and regulations are not carved in stone.

In the last ‘great inflation’ in the late 70’s there were similar usury laws and regulations in place. The main difference being that the percentage ceiling was lower. I believe it was at around 10%. When the ‘great inflation’ hit, rocketing past 16%, these protective regulations and laws went out the fucking window! The economy was on the verge of freezing for no one was going to loan money at 10% with inflation running at 60% more resulting in getting paid back at a whopping loss. Mortgage rates were 18 - 22%! Auto loans went as high as 28%!!! And yes, those who has adjustable rates got a hot kosher chicken consommé enema!

It’ll happen again! But as 'Itz_molecular' pointed out, everyone will be dead long before that.
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Last edited by James Woroble Jr.; December 29th, 2006 at 09:34 AM.
 
Old December 29th, 2006 #13
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Originally Posted by James Woroble Jr.
Tripping Over 11.5% Inflation

George Ure - www.urbansurvival.com
Wednesday December 27, 2006

There was an interesting email from my friend Roger Reynolds who publishes the great (and free) email advisory "Shame on Your Federal Reserve"

"1)Fundamentals: In his book about commodities, JIM ROGERS, repeats supply/demand time after time. So, what is the supply/demand for dollars with the current oil costs and import/export deficit??? THE DOLLAR MUST SOMEWHERE GIVE GROUND---DOESN'T IT??? What about the supply/demand for gold/silver/copper/uranium/lead/zinc/moly---has demand not been greater than supply??? When China is supposed to produce millions more cars next year--how can demand fall very far??? ALSO, GOLD HISTORICALLY DOES WELL WHEN THE INFLATION RATE IS ABOVE THE SHORT TERM INTEREST RATE. WE ALL KNOW THE "REAL" INFLATION RATE IS 8 TO 10 PERCENT, DON'T WE??? "

If you have recovered from eggnog overdoses, you'll remember that I pointed out yesterday that gold has gone up this year more than the Dow and silver lots more.. And, if we count back from the March 15 area mentioned for about a year in predictive linguistics runs from www.halfpasthuman.com, the 55-days average from market peak to crash, then we could very easily be in the vicinity of all-time highs right now.

---

It's with this in mind that we can scan the headlines and ask "Is inflation a really good thing, really bad thing, or about neutral?" Damn fine question. Warm up the coffee, this is a little complicated.

---

Inflation is a bad thing - a very bad thing - if you are on a fixed income. Two classes of people are being screwed by inflation which is running so far above "official government rates" as to be laughable. The retired military and the retired social security pensioners. Also, people on pensions which are tied to "official" cost of living numbers.



Inflation is a good thing if you are a borrower, though. You borrow expensive money and pay back with watered down money - deflated money.



In a balanced investment strategy, you try to maintain the actual purchasing power you had at the time you made an investment, plus a little actual gain. Do that, consistently, and you're a genius.

---

Government uses phony inflation numbers driven by specific measures of the money stocks (M1 and M2) but the broadest measure of the money supply, M3 was discontinued by the Federal Reserve back in March because it would scare the hell out of people.



The problem, monetarily, seems to me to boil down to this: Inflation (which you might estimate as being the relationship of the number of dollars in circulation compared with the value of available goods and services) is commonly thought of as having something to do with Gross Domestic Product versus cash money in circulation.



GDP

M1 = inflation.



The wholly fraudulent notion is that inflation relates to just cash. Of course, it doesn't. It relates to all effective money in circulation - and how fast it turns over and that fist number is M3 and the second is velocity.



Ignoring velocity of money to keep this simple, while M1 shows a very tame rate of increase lately, M3 is going through the roof, although you're not supposed to notice because the Fed knew this was coming and has hidden the numbers from public sight, lest we would all figure out the crookedness of the game.



Still, in the past few days, Bart over at NowandFutures.com has updated his (and John William's) work on M3B, a 99.9% or better estimation of what M3 would be if the Fed decided to be honest, and it show real M3.



Care to take a guess at what M3 inflation is running annualized right now? I'll make this easy for you:



11.5%



"Hmmm...that seems to be close to what my grocery bill has gone up, along with the power bills...how come government isn't telling us this?" Plausible deniability, pal.



Here's how the Big Con works. Say that you knew that money creation was slipping out of your control and that you could only influence how the economy developed by setting a few key interest rates. And suppose further than money is effectively created by non-government players who offer credit and creative financing to keep their games growing. "Are you talking about the housing industry, especially the sub primate guys and the big derivatives players who create loans out of air?" Duh. Yeah, the coffee is working.



OK, the second part of the Con is that most people have been slowly, but steadily renouncing the use of cash in favor of digidollars. Credit cards, etc.



Now, run up to the china board and write this down somewhere:

GDP/M1 = and approximation of government reported inflation. BUT



GDP/M3 (which is really digidollars) = an approximation of actual inflation.

See how this works? Government has deniability, as they would argue that they use M1, which would be fine if the real estate boyz and derivatives players weren't making money all day hand over fist through the process of loan creation. A splendid damn miracle. And government - having hidden M3 where it can't see daylight can argue "Ain't no measure of digidollar inflation...that's all speculative." Not in Texas, though. I see the proof at Brookshire's, Kroger's, Wal-Mart, Tractor Supply, just as you'll find it at Wynn-Dixie and Safeway.



So, now that you know that inflation (M3/digidollar basis) is going up 11.5%, how does the Dow look for the year? Let's pencil it out.



We start the year at call it 10,717 and we bump that up by 11.5% this week to just maintain purchasing power parity (PPP). That means the Dow's equivalent in digidollars at the beginning of the year could be argued to be in the vicinity of 11,949. Given the market's close yesterday and outlook for another run up today, let's say the Dow is really up for the year on a purchasing power basis about 3.9%.



On a PPP/digidollars basis, I'd argue that gold, starting from $516.60 would correct to $573.43 versus its $626.80 level at press time this morning. That's a 9.3% gain on a PPP/digidollar basis as of this morning.

---

Somehow I got off track. Let me get back on it by telling you (as I have told Peoplenomics subscribers for several years) that while the last Depression was arguably touched off by competitive tariffs, today's Second Great Depression is being set up one level upstream from direct tariffs by competitive currency devaluations.



Now, let's haul out some headlines to underscore how (thanks to the media not differentiating between PPP/digidollar inflation and M1 cash inflation) we could almost get the sense that the US is doing better than the rest of the world in efforts to contain inflation.



We look first at Japan. The headline there today is that the inflation rate increased in November and jobless numbers hit an 8-year low. Sounds sort of familiar, huh?



South Korea's inflation rate has increased in December.



Vietnam's inflation for the year is 6.6%



Serbia's Central Bank says inflation is below 7% now.



Inflation in Russia is running at 8.2% year to date.



On the other hand, China is looking at a 3% inflation rate for 2007 - pretty damn tame compared with US actual rates.



What's key here (and for subscribers why we watch the Global Index of multiple markets so closely) is that there is a huge competitive global inflation underway and when you read about inflation in the oil-rich Gulf Countries (where rents in some have gone up 80% since 2005) you can see clearly why OPEC doesn't have a problem raising its price. They are feeling the impacts of inflation which is robbing them of oil revenue purchasing power. They're screwed, in fact in PPP, if they don't raise oil prices!



As long as the competitive devaluations continue, a sort of economic equivalent to the music continues in musical chairs, everything is dandy. But, as soon as predictability ends, the world's going to be in a heap-o-trouble and you'll want a portfolio structured to insulate you from real declines in purchasing power, which is what investing is all about. Wealth preservation.



When the market goes up and gold goes up in tandem, think "Global competitive currency devaluations."
The above analysis is incorrect: not all increases in M3 translates into rising CPI, and M3 is not the best proxy for inflation. A combination of correctly estimated CPI and M2 growth gives a much closer proxy of U. S. inflation in FY 2005 been in the range of 7-8%.
 
Old December 29th, 2006 #14
James Woroble Jr.
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Quote:
Originally Posted by fdtwainth
The above analysis is incorrect: not all increases in M3 translates into rising CPI, and M3 is not the best proxy for inflation. A combination of correctly estimated CPI and M2 growth gives a much closer proxy of U. S. inflation in FY 2005 been in the range of 7-8%.
Of course there are numerous opinions from all quarters regarding inflation. But sometimes, to cut through all the bullshit, confusion and technospeak, the simplest common sense perspective is all that is required (for example, when the jew Fed tells you there is 2.5% inflation and your real living expenses are up 15% in the same period!)

Then we have that other common sense issue. M-3 was the Feds own method of reporting money supply (the amount of money it was ‘printing’ injecting into the system) for decades. It suddenly stops and gives YOUR reasoning for doing so. To believe your conclusion one would have to believe the jew Fed since your positions are one and the same. Their excuse - your conclusion! H-E-L-L-O!

If you print 12% more money without REAL consummate economic growth, you flood the market, and thus devalue the money by 12% (remember that thing called supply and demand?).

Perhaps to understand better the statistics you rely on for your conclusions a visit here may put reality in perspective. http://www.shadowstats.com/
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Last edited by James Woroble Jr.; December 29th, 2006 at 11:14 AM.
 
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