Exactly. Divide and Conquer, its how the British ruled 75% of the earth during its heyday. In our pc times with the formation of the UN, outright colonist takeover is'nt feasible, now its American Capitalist Interests through Us Intelligence Agencies controling 90% or even more of the third world econmically. And I don't consider India or China a third world econmoy anymore after the credit crisis.
Better now than later because the longer a bubble grows, the more wealth gets suckered in and (eventually) destroyed when it implodes as prices normalize at values -80% from peak. Hyper-inflation keeps the music going longer and longer, sucking in more and more capital that could have been used to fuel lasting growth, decades ago. Imagine a bubble that lasts for 3 years, crashes, and recovers. Now imagine a bubble that lasts 30+ years, crashes and recovers. In both scenarios, people lose 80% of their invested bubble wealth. Who recovers faster? Those who lost 3 years x 80% of their wealth because it's far less capital than 30 years x 80%. The later is what we're doing. The longer we keep this bubble going, the more money, productivity, time and brainpower we're just throwing into a financial blackhole vortex we'll never get back. Why? Because prices always correct back to equilibrium where credit = sustainable borrowing capacity. We're light-years heavy on the credit end with little-to-no ability to repay. Printing can only stave off the impending price collapse temporarily. Once printing stops, heavy deflation sets in and asset prices crash back to the same level had we just let it crash to begin with (except, crashing from a higher "starting point" = more wealth destroyed). If we never stop printing, the dollar gets repudiated, a new currency introduced, and a conversion rate that screws everyone. Or else the market rejects the new currency = an even bigger haircut for asset holders. The point here is that asset deflation is inevitable, unavoidable, and the sooner it's done, the better it is for the broader economy, as a whole. And btw, asset holders still get screwed under a hyperinflationary Depression because in real terms, asset prices reflect broader economic consumption, which, in a Depression, would be -20 to -30%, in real terms. So even as asset values rise, they don't keep pace with hyperinflation, and stocks and real estate lose value relative to the extent of the GDP contraction. That's whats happening in Zimbabwe. As for our creditors, they get shafted in either scenario (inflation or deflation). Either paid back in worthless dollars which is the same as a default. Or paid back 30-40 cents on the dollar. It's 6 or a half dozen. No bubble is sustainable without destroying the currency and huge amounts of private wealth. Better to pop it early, and take our lumps, then let it fester and grow to such massive proportion, it turns back the clock on generations of economic progress. Which is what is about to happen to America. Literally, America is about to become a 2nd World Country. All the jobs we exported and bubble wealth (yet-to-be) destroyed is about to rain down some serious sh*t.
I have a couple of thoughts on the quoted post. Bear in mind that I'm not necessarily disagreeing with all of these points, I'm just trying to understand your position and thought process better. 1. Why do you assume asset values will fall 80% when the bubble pops? 2. You say money coming in to fuel the bubble would be better spent fueling lasting growth. For some reason you are assuming that if excess debt is removed from the system, the economy will start a lasting growth cycle. Why is that? 3. Is it not better to have loved and lost, than to have never loved at all? 4. You say printing can only stave off the impending price collapse temporarily. Is it not possible to offset with productivity gains? 5. Your hyperinflation + GDP contraction scenario is also an assumption. Why do you assume GDP will contract because we have inflation? 6. Current creditors get screwed either way. The problem with your deflation argument is that once the USA defaults (and they will), there will be no more creditors. Who will lend money, not just to the USA government, but to anybody in general in a deflation scenario? Credit freezes and economic activity slows to a crawl. How do we break out of the spiral? How long do you think this will take? A very long time. Imagine the consumer confidence if deflation hits and USA defaults. Who now wants to invest their money in the USA? We all know the consumer is what drives economic activity. How long will it take, after deflation and USA default, for the consumer to break out of the mindset of save every penny and only buy the necessities? I agree that the future is dim for the USA, whether inflation or deflation takes hold. The kicker in this whole mess, and one of the main reasons I believe inflation is the better option, the fact that the world trades in USD. It is the reserve currency. Thus, there will always be demand for USD, effectively averting a total currency collapse. Until the world decides on a new reserve currency, there is no reason to believe the USD will collapse. It's in everyone's best interest to see that it doesn't.
Naw, the difference between the US and Greece is we have artificially LOW short term rates (but yet the steepest yield curve of all time). Or, in the US, we can rightly use the phrase "imported olives".
Yes. Contrary to popular belief, this didn't start under Obama. It started 40 years ago when we left the gold standard.
First, I suggest you read This Time is Different: Eight Centuries of Financial Folly, by Rogoff and Reinhart. They meticulously cover and document 100's of financial booms and busts over the past 300+ years, to dispel the oft-puked notion that this credit crisis "was/is different". It's not. Bankers have played with their toy since the dawn of fractional reserve lending, with similar effects. It would comfort you to know that yes, despite similar panics and collapses, the market always recovers, finds bottom and grows robustly after flushing the trash. Not without a lot of pain, hardship and readjustment. But that's the natural course of things. Can't enjoy the punch without the hangover. How do you suppose we got here if one panic or Depression condemns humanity to eternal squalor and cave-dwelling? To answer your questions: 1) DJIA @ 2,200 is around fair value based on pre-1983 growth rates where the FED exercised moderate restraint. That's ~80% drop from current levels. 2) Recovery doesn't occur until prices normalize. Wages are sticky, prices aren't. Bubbles inflate factor input costs/debt way beyond affordability which hamstrings future demand and output. Capital gets misallocated into over-indebted sectors/products, which require liquidation before tied-up capital is released into more productive activities. Bankruptcy is a natural part of the cleansing process where debts are written off, shareholders stuffed and uncertainty removed, so new wealth created is reinvested to grow sound businesses. Part of that recovery process is a firm spanking of foolish investors and business (No Moral Hazard) that encourage future, wise decision making. Once bankruptcies and flushing occurs, capital markets (yes, us traders actually perform a legitmate and important role in recoveries!) reinvest our short plunder into the new juggernauts of tomorrow. 3) Not when the cost is a few lost appendages. 4) Yes, but nothing of the traditional magnitude. We need a technological breakthrough the likes of the Model-T, telephone, electricity, or free energy. Basically, not gonna happen. 5) There is nothing assumptive about it. That's how inflationary depressions work. Please brush up on neoclassical macro. Inflation kills incomes, which kills demand, which kills output. Remember, wages are sticky. Prices aren't. Prices rise faster than wages. People buy less for the same price, output shrinks = drop in GDP. Zimbabwe, Reich-mark, 1970's America. All the same. Inflationary recession, depression. Factor input hikes kill demand. 6) This is the same Chicken Little nonsense that's parroted ad naseum by CNBC and the rest of the Wallstreet bailout queens. Economic collapses and panics are a natural and frequent part of modern banking cycles. Wealth is created. It's not fixed. As long as people are willing to work for things, wealth is regenerated. Even from zero. The 1929 crash was far more severe, than necessary, because the FED refused to buy bank treasuries and infuse capital to prevent cascading runs and stave off credit destruction. Our creditors aren't the big worry here.... Unending deficits aren't sustainable and precipitate economic crashes if they're not guarded against. Our ability to put even more cheap junk on the credit card is a pipedream. Those days are gone. And if the US does crash, USD reserve status and deflationary economics would buoy prices, suppress yields, and allow us to roll over much of what we've got. Either way, it's not important. What's important is that we live within our means. Overconsumption now means we pay for it through Depressions later. The idea that China, Japan, Europe and private investors will play ball if we outright monetize is ludicrous. See, the whole point I think you missed it won't matter if other nations maintain their peg to the dollar when we go into a depression. When US consumers can't buy anything, it won't do any good for China to throw good money after bad and maintain a peg that doesn't provide any ROI. What's the point of giving America free stuff they can't pay for, if China can just as easily gift it to themselves?????? The hyperinflationary scenario you articulated will dramatically cut purchasing power, GDP, living standards, and destroy private savings/capital -- even IF other countries maintain a dollar peg. It's six or one half dozen. The laws of economics are immutable. They can't be avoided. Merely delayed. And if other Countries maintain a peg, it means they hyperinflate TOO. Which means global GDP will collapse just as much as US GDP, thus strangling their own domestic markets (and export markets), in the process. None of that makes any sense. The game here is to cut losses. Not hold up a loser and fool ourselves through accounting games and wishful thinking, we're winning.
I didn't think so. It's gonna get ugly, either way. A 20K stipend per unemployed person is more than enough in a deflationary depression. The rest we plough into medicare, and some defense.
Peter Schiff needs to wear a disclaimer around this neck. A big sign that says "DUMB ASS". "I'VE ALWAYS BEEN WRONG, I'M WRONG AND WILL ALWAYS BE WRONG". Anyone that has advocated shorting or standing on the sidelines wiith cash during one of the best rallies ever, needs to just STFU and go away.:eek: