U.S. Inflation to Approach Zimbabwe Level, Faber Says

zdreg · May 28, 2009

Quote from Ivanovich:

So to sum up, Faber believes that inflation in the U.S. will get "close" to 231 million percent?

Really? How "close"? Give or take 231MM percentage points?

LOL
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and of course america is not becoming a 3rd world country.

piezoe · May 29, 2009

Quote from JJacksET4:

What a joke. Inflation is one thing, but come on. BTW - fear mongerers always forget to point out the good in inflation - people could easily pay off their home, car and other loans. Think about it - multiply your income and some expenses by 10 fold, except the mortgage, car payment, other loans, etc. would not go up. That would actually be good or even great for alot of people. Not saying it's going to happen though.
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You are making an important point that goes to a primary reason why actual deflation in the U.S. economy would be so disastrous, and why, therefore, the Fed will do what they can to prevent it. No one, private, corporate, or government, is going to be enthusiastic about returning more buying power to their creditors than they borrowed!

The situation in Japan is often brought up in discussions of the U.S. economy, but I think the parallels are a bit strained. One main difference, among several, is that Japan was and is a nation of savers, thus there was not the incentive there to inflate.

ivanbaj · May 29, 2009

Quote from piezoe:

You are making an important point that goes to a primary reason why actual deflation in the U.S. economy would be so disastrous, and why, therefore, the Fed will do what they can to prevent it. No one, private, corporate, or government, is going to be enthusiastic about returning more buying power to their creditors than they borrowed!

The situation in Japan is often brought up in discussions of the U.S. economy, but I think the parallels are a bit strained. One main difference, among several, is that Japan was and is a nation of savers, thus there was not the incentive there to inflate.
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I think you are saying the policy will be such that the most people get screwed to benefit the few. It sounds like trading. I always was under the impression that we are all traders like it or not. Some of us accept it, othres ignore the big elephant in the room.

libertad · May 29, 2009

Quote from ivanbaj:

I think you are saying the policy will be such that the most people get screwed to benefit the few. It sounds like trading. I always was under the impression that we are all traders like it or not. Some of us accept it, othres ignore the big elephant in the room.
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..........................................................

We are all traders ....like it or not....

What is not bought and sold ?

Good post !!!!

Dr. Zhivodka · May 29, 2009

Just imagine what it will be like in Zimbabwe then.

Quote from S2007S:

Im sure 99% here will not agree with the word hyperinflation and about 75% believe were probably not going to see any inflation at all, however inflation is will come no matter what the fed does. Everyone knows the fed is always a tad late in moving interest rates and with them being at historical lows the chances of them making any attempt to keep inflation in check is going to be nearly impossible as the trillions they are printing will be too much for them to even put a handle on. I believe inflation is going to skyrocket and the dollar is going to collapse. With trillions of dollars and lack of knowledge with the magnitude of this credit crisis, it will be nearly impossible to keep inflation tame at any point.

U.S. Inflation to Approach Zimbabwe Level, Faber Says (Update2)

By Chen Shiyin and Bernard Lo

May 27 (Bloomberg) -- The U.S. economy will enter âhyperinflationâ approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates âclose toâ Zimbabweâs gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabweâs inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

âI am 100 percent sure that the U.S. will go into hyperinflation,â Faber said. âThe problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.â

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officialsâ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

âThere are some concerns of a risk from inflation from all the liquidity injected into the banking system but itâs not an immediate threat right now given all the excess capacity in the U.S. economy,â said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. âI have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.â

Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.

Near Zero

The U.S.âs main interest rate may need to stay near zero for several years given the recessionâs depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday.

Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years.

The global economy wonât return to the âprosperityâ of 2006 and 2007 even as it rebounds from a recession, Faber said.

Equities in the U.S. wonât fall to new lows, helped by increased money supply, he said. Still, global stocks are ârather overboughtâ and are ânot cheap,â Faber added.

Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. âOf all the regions in the world, Asia is still the most attractive by far,â he said.

Gloom, Doom

Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poorâs 500 Index has since climbed 9 percent.

Faber, who said heâs adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $949.85 an ounce at 12:50 p.m. Hong Kong time. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.
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ByLoSellHi · May 29, 2009

The fed can't pick and choose what to inflate and what to deflate. They can try, but they won't succeed.

Durable goods and housing keep falling, while select commodities and interest rates are inflating.

Disastrous fed policy. Totally and utterly disastrous...

If oil keeps rising, it will once again help crush the rest of any chance (however slim) of any economic recovery.

Watch and see.

Cutten · May 31, 2009

Quote from makloda:

That's correct only if you form a "real corporation" with employees, a physical presence, a "real" business with revenues and costs etc. Also, in these cases, the burden of proof is on the tax payer to prove this offshore corporation was not primarily formed as a tax avoidance vehicle.

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Yes but that is easy to do for someone on a top tax rate.

Also there is no requirement for you to have employees other than yourself, there is no requirement for a physical presence beyond what is needed for the business (which for a one-man trader is a 100 sq ft office or study at home), revenues are your trading profits and costs are your trading costs.

In other words, it is a trivial requirement.

Cutten · May 31, 2009

Quote from piezoe:

The situation in Japan is often brought up in discussions of the U.S. economy, but I think the parallels are a bit strained. One main difference, among several, is that Japan was and is a nation of savers, thus there was not the incentive there to inflate.
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Hmm this is a good point, but bear in mind that bond yields going to 1.5% and real estate falling for 13 consecutive years is not exactly good for savers either. Also, pursuing an inflationary policy could cause a dollar crisis and get out of control like in the 70s (or worse). Hyperinflation in nominal terms is extremely deflationary for the price of local assets in real terms.

The Fed does have a mandate to ensure price stability and I just don't think they will deliberately inflate to a signficant degree beyond avoiding deflation. The questions are i) can they avoid deflation and ii) can they then avoid inflation if they went to extremes to avoid deflation, and iii) will they be willing to do both of these things? IMO the answers to 1 and 2 are yes, and the answer to 3 is debatable. Both QE and monetary tightening later on a la Volcker will alienate significant politically important constituencies.

Cutten · May 31, 2009

Quote from Daal:

This is true, CFC laws seem to be specially tough in the US
http://en.wikipedia.org/wiki/Controlled_Foreign_Corporation

However there are always ways around it and loopholes, one just need to devote some time and pay for some offshore advice
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So you are claiming US CFC laws have extra-territorial jurisdiction over foreign corporations? Not being a US citizen I haven't paid a tax attorney to clarify that, but I'd be surprised if you are correct.

agtrader777 · May 31, 2009

I may be crazy, but at some point, Paul Volcker's lessons form the early 1980s will have to be recalled and repeated. I hope not. It wasn't a lot of fun, but it worked.