Generational Dynamics Forum - New Site

John, are you really saying that there are NO inflationary signals? Where do you live and what is your income if you believe that? For those of us who are close to the bottom of the financial pile, I PROMISE you real costs are really going up in the US, to the point that it is causing significant economic harm for many of us. If you're not seeing inflation you aren't paying attention in the right places. Period.

Vince is right about inflation, John, and I would recommend you wise up and look at the data again. If you still can't find it when it's staring you in the face, wait a few months.

Inflation, even hyperinflation, and deflation aren't mutually exclusive, and it looks like our incompetent leaders are heading us into the worst parts of both. Everyone has less money, but things you need cost way more. The shear effect of this once it really gets going is going to be brutal!

Vince - I'm curious - how would you say that your economic predictions influence your survivalist/disaster preparation activities, if any? Most 'survivalists' seem to have no real idea of what they're doing, but if you're right about the impending death of fiat money, and I think you are, things are going to get very dicey, and survival will be a vital topic to be expert in. Anyone have any insights?

burt wrote:

Higgenbotham wrote: China has just announced this week that all cross border transactions (goods moving in and out of China) will no longer be priced in dollars starting sometime this year.

Bluff or Reality? most derivatives markets are in dollars, and, on my knowledge, 80% of the world money is used for derivatives, NOT for real stuffs.

Higgenbotham where did you get this information, I didn't noticed it, thanks

Regards

http://www.reuters.com/article/2011/03/ ... 6420110302
'

BEIJING, March 2 | Wed Mar 2, 2011 5:43am EST

BEIJING, March 2 (Reuters) - China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role.

In a statement on its website http://www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily. (Reporting by Zhou Xin and Koh Gui Qing; Editing by Ben Blanchard)

If the market jumps on board, that may be the tipping point Sam Zell was alluding to. In my opinion, in order to be sure that won't happen, the US will need to take immediate action to show they're serious about no longer debasing the dollar. The only immediate action I can think to take is to remove Bernanke. From there, they can move toward removing the props under the stock market and letting it crash, cutting a few hundred billion in spending over the next couple months and letting the bankrupt entities go bankrupt. That is, if they want to continue having the world reserve currency. If they don't, they can keep doing what they're doing and the world monetary system will probably descend into chaos. It's a political question as I see it, a generational question.

Some more detail in a Der Spiegel article that has been translated:

http://www.scribd.com/doc/49892336/Marc ... the-Dollar

China attacks the dollar

The Chinese central bank surprises with a spectacular announcement: The would-be superpower wants to handle their entire future foreign trade in yuan, not in dollars. Beijing shakes America's claim to represent the key currency - with serious consequences for theU.S.

Berlin - It's inconspicuous announcement, but it has the potential, the balance of power on the world currency market to permanently change: China strengthens the international role of the yuan. All exporters and importers will still account for in this year's transactions with their foreign partners may Yuan, the central bank said Wednesday in Beijing.

http://www.spiegel.de/wirtschaft/sozial ... 30,00.html

Can you translate this?

vincecate wrote:

Higgenbotham wrote:When normal relationships don't hold in huge markets, then something is wrong. I called a friend of mine the other day and said let me see if I have something straight. I said after the stock market sells off a couple percent, the dollar will usually be up the same day but if it's not it will ALWAYS be up the next day, do I have that right? He said right. And I said have you noticed that's not happening too? He said yes, I've noticed it too. Another thing is when you see the stock market selling off, it is not normal for silver to be rising 3% per day.

I think it makes sense. Think of it as 4 different currencies called, "dollar", "S&P", "oil", and "silver" but with the added twist that 3 of these are usually reported in terms of "dollar". Think that the real value of "oil" and "silver" don't change much on a day to day basis, at least the real value does not change as easily as the real value of "dollar". If "dollar" goes down but the real value of "S&P" is unchanged then in "dollar" units it will go up. But "oil" going up in "dollars" hurts both "S&P" (reflecting higher cost) and "dollar", then both of those can go down at the same time. If "oil" is up 2 or 3% in "dollars" then it is reasonable for "silver" to be up 2 or 3% also since really "oil" and "silver" are not changing and the real value of "dollar" is changing.

There's a fly in the ointment with the line of reasoning you're making and it's the fact that not only is the dollar a "paper" market but so are the rest of these. Speculators can bid up the prices of paper silver contracts but the underlying silver isn't there either (just as there is no real backing for US dollars). I can't remember the exact stats but CPM Group used to put out a comparison of the silver derivative market in relation to the real silver market and the derivative market is at least 100 times larger if I remember right.

So while what you are saying might be considered logical if the underlying existed and the trade was exclusively physical, in reality all of these paper markets have potential to crash and revert back into deflation (for awhile, not necessarily permanently). The crash would need to be tremendous in order to overcome the barrier the Fed has put up, but it's very possible and even likely. The reality is that there's potentially less ability to convert paper silver into real silver than there is to convert paper dollars into something real. A large dealer in the physicals told me several years ago that he stopped accepting paper silver contracts because he was having trouble moving metal in and out of the exchange warehouses. That was a very tactful way of putting it. A paper silver contract could in reality be more worthless than the equivalent in US dollars due to nonexistence of the underlying. Once that's discovered, then the stampede goes in the other direction for awhile.

After that, just as we had mentioned potential for the electronic dollar market to become disconnected from the "real" dollar market, the paper silver market will probably become disconnected from the real silver market. Once that disconnect occurs, real silver could make a tremendous move higher in real terms. If that disconnect occurs in conjunction with a disconnect between the electronic and real dollar markets, then the whole process would actually be deflationary because the phony electronic markets would be wiped out and only the real money would be left. Obviously, as we mentioned before, that would require a reversal of Bernanke's fraud of not properly collaterizing the paper dollars (Federal Reserve Notes) as required under the Federal Reserve Act.

How that all shakes out would also depend on the ratio of illicit "paper" to real underlying in each market.

Dear Higgie,

Higgenbotham wrote: > I don't think anything will replace it; there will just be
> complete chaos like I said before. Then over a few decades, a
> computerized system accommodating all the various currencies will
> be implemented. But it's becoming clear that the world will no
> longer likely tolerate what is happening to the dollar. And that's
> a good thing.

This doesn't make any sense to me. Even if you don't want to believe
that we're headed for a world war, or the Singularity, you still can't
possibly have any idea what kind of currency system we're going to
have in a few decades.

I agree with the "chaos" concept, but it bothers me that you
automatically assume that "chaos" means the dollar is going to fall
20-40%. Why not assume that it's other currencies that are going to
fall by 20-40%?

The Reuters article you referenced is a pipe dream. I recall that
Iran said a few years ago that it was going to price oil in other
currencies, and it never happened. And all last year, I was listening
to "experts" on CNBC and Bloomberg TV talk about how people should
invest in developing countries because that's where money is to be
made. But now, with stock markets crashing in developing countries,
it turns out that last year's advice was total crap. People came back
to the U.S. because it's the place with the safest investments.

I look at the "chaos" concept as follows: In both the global financial
and geopolitical areas, world officials have been extremely efficient
at applying band aids that don't solve the problem but keep things
going for a while longer. This is a big difference, in my opinion,
between the world today and the world in the 1930s. I would guess
that the world has gotten better and better at applying band aids in
each century. It's part of globalization, which is possible because
of the steady growth in technology (transportation, communications,
etc.)

However, once "chaos" or "panic" breaks out, in the form of a major
war or major financial crisis, then it's no longer possible to apply
band aids. At that point, the long-term trends take effect, like a
rubber band that's been stretched and now has to snap back. And the
long-term trend at this time is deflation.

People automatically assume that America is "broke," and China "has
all the money," and that China will one day stop buying
U.S. treasuries, and that will cause chaos, and the dollar will fall
20-40%. That doesn't make any sense at all.

First, if China stops buying treasuries, then it will be more
devastating to China's economy than to ours, and will unleash enormous
unrest in China, probably a full scale civil war. Wen Jiaboa would
not disagree with this statement; in fact, he's said as much himself.

** China is 'unsteady, unbalanced, uncoordinated and unsustainable'
** http://www.generationaldynamics.com/cgi ... 22#e070322

Second, if China stops buying treasuries, then it will cause
international trade to collapse, and will be enormously damaging to
other Asian countries, and there will be an enormous worldwide
deflationary shock.

At that point, will the US government "print money" and cause
hyperinflation? Absolutely not.

In a deflationary environment, "printing money" will not cause
hyperinflation. All it will do is partially compensate for the
deflation. Instead of a 50% fall in the CPI, there'll only be a 30%
fall in the CPI.

That's why none of the historic examples of hyperinflation occur in
the 1930s. You can't have hyperinflation after a deflationary shock.
All you can have is less deflation.

I'll say again that I cannot think of a credible scenario where the
dollar falls 20-40% against Asian currencies in the next few years.
What happens in the next couple of decades is anyone's guess, and will
depend on the progress and the outcome of the war.

John

John wrote:Dear Higgie,

This doesn't make any sense to me. Even if you don't want to believe
that we're headed for a world war, or the Singularity, you still can't
possibly have any idea what kind of currency system we're going to
have in a few decades.

I agree with the "chaos" concept, but it bothers me that you
automatically assume that "chaos" means the dollar is going to fall
20-40%. Why not assume that it's other currencies that are going to
fall by 20-40%?

The Reuters article you referenced is a pipe dream. I recall that
Iran said a few years ago that it was going to price oil in other
currencies, and it never happened. And all last year, I was listening
to "experts" on CNBC and Bloomberg TV talk about how people should
invest in developing countries because that's where money is to be
made. But now, with stock markets crashing in developing countries,
it turns out that last year's advice was total crap. People came back
to the U.S. because it's the place with the safest investments.

I look at the "chaos" concept as follows: In both the global financial
and geopolitical areas, world officials have been extremely efficient
at applying band aids that don't solve the problem but keep things
going for a while longer. This is a big difference, in my opinion,
between the world today and the world in the 1930s. I would guess
that the world has gotten better and better at applying band aids in
each century. It's part of globalization, which is possible because
of the steady growth in technology (transportation, communications,
etc.)

However, once "chaos" or "panic" breaks out, in the form of a major
war or major financial crisis, then it's no longer possible to apply
band aids. At that point, the long-term trends take effect, like a
rubber band that's been stretched and now has to snap back. And the
long-term trend at this time is deflation.

People automatically assume that America is "broke," and China "has
all the money," and that China will one day stop buying
U.S. treasuries, and that will cause chaos, and the dollar will fall
20-40%. That doesn't make any sense at all.

First, if China stops buying treasuries, then it will be more
devastating to China's economy than to ours, and will unleash enormous
unrest in China, probably a full scale civil war. Wen Jiaboa would
not disagree with this statement; in fact, he's said as much himself.

** China is 'unsteady, unbalanced, uncoordinated and unsustainable'
** http://www.generationaldynamics.com/cgi ... 22#e070322

Second, if China stops buying treasuries, then it will cause
international trade to collapse, and will be enormously damaging to
other Asian countries, and there will be an enormous worldwide
deflationary shock.

At that point, will the US government "print money" and cause
hyperinflation? Absolutely not.

In a deflationary environment, "printing money" will not cause
hyperinflation. All it will do is partially compensate for the
deflation. Instead of a 50% fall in the CPI, there'll only be a 30%
fall in the CPI.

That's why none of the historic examples of hyperinflation occur in
the 1930s. You can't have hyperinflation after a deflationary shock.
All you can have is less deflation.

I'll say again that I cannot think of a credible scenario where the
dollar falls 20-40% against Asian currencies in the next few years.
What happens in the next couple of decades is anyone's guess, and will
depend on the progress and the outcome of the war.

John

The world monetary system is beginning to break down because there is no safe haven to move money into. The markets are demonstrating that confidence in the dollar is being lost. We may in fact be on the verge a complete breakdown of the world monetary system, similar to the Fall of Rome or the 14th Century Collapse. The fact that people didn't believe that could happen or understand the fundamental precepts of finance and take corrective action to prevent it is why it is in fact occurring. I've said many times that if Bernanke wasn't reined in by certain timelines, that this breakdown could occur. Bernanke is not tweaking as you have said. By failing to stop the fraud and to rein in the big banks and the leverage that can be generated, the productive capacity of the economy is being destroyed, just as matter is destroyed in a black hole. In addition, by taking junk mortgages onto the Federal Reserve's balance sheet and failing to properly collaterize Federal Reserve Notes in accordance with the Federal Reserve Act, Bernanke is destroying the monetary base and by extension the world reserve currency. Once the dollar is no longer viewed as the world reserve currency, then the premium will be taken off and it should happen rather abruptly. That's why the dollar can fall 10, 20, or even 30 percent in one fell swoop - the privilege of the world reserve currency carries a premium in value and living standards. But it also carries responsibilities and those responsibilities have not been lived up to.

If a breakdown of the world monetary system occurs, Humpty Dumpty can't be put back together because there isn't a viable substitute for the dollar; instead, chaos will ensue. Political breakdown will follow (and is following) as night follows day and smaller political entities will emerge. In the US, self-governing individual states or regions will reject ineffective and corrupt central authority out of necessity and, with that, create their own sound money systems. This process is already beginning in 13 states. It was entirely predictable and is an offshoot of Washington's incompetence and moral failure. It's a fact that there are competent and moral people who can assume leadership roles on a regional basis and they will do so. I've mentioned this many times as a future possibility, although if it occurs now I was several years off on the timeline. It still may be several years before it happens. From there, it's not too hard to connect the dots as to what happens next given the technological capabilities. I've done this many times here.

The Reuters article I mentioned is not a pipe dream. Just in Hong Kong, 50 billion in yuan was circulating 6 months ago and that figure is now 300 billion yuan. 250 billion in US dollars have been replaced in one of the world's capitals of finance in a mere 6 months. Granted, up until recently, the movement away from the dollar was token and anecdotal. That is no longer true. The floodgates are now open and the markets are reflecting it. Like I stated, there may be a few weeks or months to rectify the situation. It's impossible to know how much time there really is or if it can be rectified at all. The US is no longer safe and, as I posted a few weeks ago, the triple A rating of US government debt is on watch by Moody's.

There's a difference between a rubber band that snaps back and a rubber band that has been pulled too far and been broken. I don't know if the rubber band has been broken yet, but it may be. As I see it, we're on the knife edge now. If the rubber band breaks, then the world moves into a Dark Age. Again, I've mentioned this possibility many times, but the reality of it is here and now. Either the collective grasps the danger that it is in and rectifies the situation or it doesn't. Once the world moves into a Dark Age, it's not a question of inflation or deflation. Forward progress will stop as the world regroups and forms the political and economic systems needed for future advancement centuries down the line. The formation of numerous smaller political entities from the larger failed entity is part of that process. The small political entities that fail in the future will then be eventually absorbed according to the rules of the successful systems. At that time, the failures of the early 21st century will be thoroughly understood, but they aren't now.

John wrote: First, if China stops buying treasuries, then it will be more devastating to China's economy than to ours, and will unleash enormous unrest in China, probably a full scale civil war.
[...]
Second, if China stops buying treasuries, then it will cause international trade to collapse, and will be enormously damaging to other Asian countries, and there will be an enormous worldwide deflationary shock.

International trade and the fate of China demand that China keep buying US Treasuries? Really? No other options? Nobody else would buy China's goods except the US? Why can't China buy bonds from any other broke country and have them buy Chinese goods? Or loan money to their own citizens and have them buy the goods? Why must they loan money to the US and have US people buy the goods? Can't China keep the value of Yuan down by just printing Yuan and buying other things besides Treasuries? I mean printing Yuan and buying any commodities would lower the value of the Yuan if done enough (iron, copper, gold, silver, rice, wheat, whatever). I think there are more than a few logical leaps here. Can you fill in some more detail as to why you think buying Treasuries is the only option?

http://pair.offshore.ai/38yearcycle/#keepbuying

Dear Higgie,

Higgenbotham wrote: > The world monetary system is beginning to break down because there
> is no safe haven to move money into. The markets are demonstrating
> that confidence in the dollar is being lost. We may in fact be on
> the verge a complete breakdown of the world monetary system,
> similar to the Fall of Rome or the 14th Century Collapse.

If the world monetary system is going to experience a complete
breakdown, then how can your statement that the dollar will fall
20-40% have any meaning whatsoever?

John

Higgenbotham wrote:In the US, self-governing individual states or regions will reject ineffective and corrupt central authority out of necessity and, with that, create their own sound money systems. This process is already beginning in 13 states. It was entirely predictable and is an offshoot of Washington's incompetence and moral failure. It's a fact that there are competent and moral people who can assume leadership roles on a regional basis and they will do so.

Imagine these 13 states say that gold is legal tender and you can use that for your purchases and sales if you want to. Now if you buy your house, or some stock, using gold and then sell it 10 years later in gold, you only pay taxes on any profits in the difference in the number of ounces you bought and sold for. If there is inflation in paper money, which we can count on, then you calculated profits are much higher in paper money and so taxes would be much worse. Everyone will move to using gold for investment purchases as soon as possible (begging etrade to have an option for using gold instead of cash).

When not prohibited by law, or taxed in ways that paper money is not, good money will drive out bad. People will be amazed at how fast it happens.

The people buying and selling in gold, when it is legal tender, will not pay nearly as much Federal tax. The Fed may fight but people and states will fight back.

The total for all the state deficits is around $150 billion for the year. This is between 1 and 1.5 months of Federal deficit. So the Fed is far far worse off than the states, except that it can print money. If it loses the ability to print money the central government is toast. If it has trouble collecting taxes on bogus capital gains that are really due to inflation, it will be in trouble. When it collapses it could just go away like the Soviet Union. The states would carry on.

John wrote:Dear Higgie,

Higgenbotham wrote: > The world monetary system is beginning to break down because there
> is no safe haven to move money into. The markets are demonstrating
> that confidence in the dollar is being lost. We may in fact be on
> the verge a complete breakdown of the world monetary system,
> similar to the Fall of Rome or the 14th Century Collapse.

If the world monetary system is going to experience a complete
breakdown, then how can your statement that the dollar will fall
20-40% have any meaning whatsoever?

John

If a breakdown is experienced, it will happen in stages. The first stage will be the recognition that the dollar is no longer the world reserve currency. If that point of recognition is reached, the dollar will fall 10, 20, or even as much as 30 percent in one fell swoop. The fall will be in the US dollar index, which is a measure of the value of the US dollar with respect to a basket of the world's dominant exchange traded currencies. It's axiomatic that there is a premium on the US dollar due to its status as the world reserve currency and if that status is lost, the premium will come off just as night follows day. So if you wake up one morning and the dollar is down 10 percent or so, that is what is happening. From there, a lot more interesting things will happen.

vincecate wrote:Imagine these 13 states say that gold is legal tender and you can use that for your purchases and sales if you want to.

In addition, there will be a flood of competent people moving to states that can competently run their monetary systems. This will leave the incompetent states in a condition of anarchy and breakdown. So the first states "out the door" and the first migrants "in the door" of the competent states will prosper.