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alstry (35.09)

NO INFLATION....Karl Denninger gets it!!!!!!!!!

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January 12, 2009 – Comments (18)

Let's put this to rest right here and now.

"Hyperinflation", or even "Serious Inflation" (similar to what we had in the 1970s) is impossible without a means to transmit the rise in prices into wages.

In today's United States that simply cannot happen for two reasons:

The union representation of workers has been eviscerated due to their own idiocy over the previous thirty years.  In effect, they have no power to impact economic or labor policy - no matter what Gettlefinger thinks. Outsourcing of work to China, India, Mexico and other nations makes wage demands impossible for American workers to enforce.  Such demands simply result in the loss of the job to overseas workers.

As a consequence a hyper-inflationary or even seriously-inflationary spiral is impossible to sustain.

Think about your associates, people who you know in the middle class.

Now consider that a 10% inflation rate (moderately bad "serious inflation" ala 1970s) goes on for four years.

This raises the cost of living for everyone by 46%.

How many people who you know are saving 46% of their income?  How many will survive a 46% increase in their cost of living?

Such an outcome will result in half or more of America becoming immediately homeless, hungry, and as a consequence out of work.  It will as a consequence crash GDP by 50% or more immediately which in turn will crash income tax receipts by a like amount at both state and federal levels.

This will in turn crash prices, but at that point it's too late as now the price crash in turn destroys what remains of the business community and further crashes tax receipts, while at the same time foreign bond investors throw up their hands and say "screw you!", cutting off all foreign capital inflows to the government.

Down that road lies immediate insurrection - that is, the violent overthrow of the government.  You are delusional if you think the military could stop such a thing - 150 million Americans, maybe even 200 million of the 300 million in our population?  Not a prayer in hell, even if all the Americans had was pitchforks, torches and a gallon of gasoline, and they don't - they have firearms, and lots of them.  Even the Chinese, who are (by demonstrated act) willing to roll tanks over their own people would have no chance against 100 million of their citizens if hunger ever trumps fear.

This didn't happen in the 1970s because we had vastly more union work representation and they were able to force wages to keep pace for the average working man.  While the pinch was bad (I grew up in it and remember it vividly) society never degenerated because the self-reinforcing crash of production, jobs and tax income never happened, and as a consequence the sort of mass-unemployment, disenfranchisement and loss of essential human needs did not come about.

Today the average working man works for WalMart or some other non-union shop and has no wage pricing power; ergo, there is absolutely no way to prevent the implosion from initiating.

The government must not engage in any sort of policy that could lead to this outcome.  Absolute protection at the top levels of government must be put in place to prevent it, because if this occurs then everything - absolutely everything - that we know and love about America disappears.

This is where the Peter Schiffs and McHughs are wrong in their hyperinflation thesis and their "defensive" measures to try to do something about it (or worse, McHugh's belief that not only is this inevitable but that the government should intentionally cause it through something like a "money drop" to households.)

They are wrong because if this outcome occurs there will be no United States of America, your gold will be confiscated and/or rendered worthless by executive fiat, and at approximately the same time an angry marauding mob consisting of half the population of the country will literally loot and burn everything to the ground.

Vengence inevitably follows when justice is denied for a long enough or in an egregious enough fashion.  We have seen this with Rodney King and now with the apparent BART assasination of a suspect in Oakland, and that was one man who was abused at the hands of government.  Make the abuse half the population and there is a zero chance that civil and political order is maintained.

Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control".

Time is running out to demand and obtain justice folks.  America's clock is literally ticking towards zero.

At least someone gets it!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

18 Comments – Post Your Own

#1) On January 12, 2009 at 9:07 PM, briyan (30.71) wrote:

Pray that our nation's leaders aren't stupid enough

 

When has this ever done us any good?  I firmly believe our nation's leaders are stupid enough.

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#2) On January 12, 2009 at 9:45 PM, IlanBigfoot (92.76) wrote:

Or better yet, put smarter people into office. Bush out in a week, check! 

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#3) On January 12, 2009 at 10:02 PM, jeffduby (22.23) wrote:

Thank god there are other people out there reading denninger. Although I'd like to see what he is saying after unemployment hit's 10 percent and congress starts throwing out protectionist policies.

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#4) On January 12, 2009 at 10:15 PM, jesusfreakinco (28.78) wrote:

Wow... How does one respond to these dreams?

The government must not engage in any sort of policy that could lead to this outcome.  Absolute protection at the top levels of government must be put in place to prevent it, because if this occurs then everything - absolutely everything - that we know and love about America disappears.

But, our politicians are leading us down this path.  Us, the sheeple, will let it happen because we know no other path.

They are wrong because if this outcome occurs there will be no United States of America, your gold will be confiscated and/or rendered worthless by executive fiat, and at approximately the same time an angry marauding mob consisting of half the population of the country will literally loot and burn everything to the ground.

This is what many of us fear.  Many Americans (perhaps myself included) are spoiled brats and have lost the ability to work hard for what $ they make. 

 Pray that our nation's leaders aren't stupid enough to set in motion such a course of action either by accident or under the foolish belief that they can "keep the outcome under control".

Well said, AMEN!  However, I fear for what our gov't will do for (TO) us...

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#5) On January 12, 2009 at 10:21 PM, BigFatBEAR (29.10) wrote:

I like Denninger on youtube: http://www.youtube.com/user/kdenninger

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#6) On January 12, 2009 at 10:43 PM, RVAspeculator (28.89) wrote:

Title of the post is no inflation and how it is not possible.

Then the rest of the post is spent begging the government not to cause it to happen.

How can you say something is "not possible" and then say "The government must not engage in any sort of policy that could lead to this outcome. "

HA!

 

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#7) On January 13, 2009 at 12:17 AM, awallejr (85.43) wrote:

Hate to say this, but Alstry is right about the "wage inflation" analysis.  It was because of the outsourcing to cheaper locations (one of the cries of Peter Schiff about no real manufacturing in the US) and the excessive lending beyond the wage growth capabilities of the US economy that is precluding any massive inflationary spirals at the present time.

If, however, other countries begin to replace the US as true consumer nations, then things will change I submit.

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#8) On January 13, 2009 at 12:35 AM, kaskoosek (70.07) wrote:

awallejr

 

Alstry forgets one very important point and it is international economics.

1 - Foreign governments have ammassed US treasuries.

2 - Do not underestimate the role of the Government in creating "new jobs" that are inefficient. ie spending money without being productive.

3 -  Bailing out of inefficient companies that pay very high wages.

4 - Unsustainable budget deficits.

5 - A run on the dollar due to all of the reasons outlined above.

Yes in a normal situation we should have deflation, but with Keynsian economics inflation is the name of the game. 

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#9) On January 13, 2009 at 12:53 AM, nthought (< 20) wrote:

You make a great point about unions.  I'd add that now that hardly any Americans are in unions, and white collar workers do not expect any loyalty in return from firms, it will be very easy for companies to lay off workers en masse.  The financial crisis has sparked an immediate unemployment problem due to this fact.  

 

Maybe if and when unemployment returns to a reasonable number, say under 5%, we will have inflation.  That is not going to happen anytime soon.

 

I agree with you 100%. 

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#10) On January 13, 2009 at 12:54 AM, Paxtor (28.77) wrote:

Thanks for the laugh.

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#11) On January 13, 2009 at 7:02 PM, TheGarcipian (60.44) wrote:

Interesting article from Denninger, but he leaves out a key point: we are printing money faster than we've done in the past 30 years. By that definition alone, we are already primed for an inflationary period. Unless the Guv'mint is handing you some of that $1.6T it's tossed out so far, the money in your wallet is now worth LESS than it was just 4 months ago. Ergo, inflation by default. Granted, we'll not see the truly devastating effects of inflation (10%+) until after employment rises again, as  nthought notes. Also, I agree with kaskoosek: we are intrinsically tied, for better or for worse, with the rest of the world through our T-bills, mostly with the PacRim countries. They will not be happy when their net holdings decline in value as the USD plunges in value and inflation takes hold. It's going to be a delicate balance for us and our partners, and we'll need to make sure we don't step on each other's toes.

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#12) On January 13, 2009 at 8:03 PM, outoffocus (22.81) wrote:

Its funny.  At first I thought this blog was saying that inflation or hyperinflation will not happen.  But actually its giving a hypothetical.  For the reasons stated in this blog, I disagree with the Feds continual printing of money and the Treasury's constant borrowing.  Everyone knows that the government gets "the memo" after everyone else.  Who is the say that the government will promptly stop printing money once the economy recovers?  It already took a YEAR for them to declare a recession.  I think a year is plenty of time for the government to get it wrong again and send us down this path.

Us whiney americans need to stop trying to prop up the status quo and take our bitter medicine.  If we keep encouraging the government to prop up the economy we are going to experience the scenarios outlined in this blog.  Plain and simple. 

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#13) On January 14, 2009 at 2:24 AM, awallejr (85.43) wrote:

Maintaining liquidity and creating potentially longterm job growth is not a bad idea during a major recession.  Has nothing to do with whining.  Use that line in a MMO, but don't use it when real people are truly hurting.

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#14) On January 14, 2009 at 10:40 AM, lquadland10 (< 20) wrote:

You are postivily brimming with cheerfulness today. I like that. THE NEW WORLD ORDER has gotten what they wanted so far and mass choss and looting is their next step. All is going to their plan. Bankrupt Amercia and they have done it. Lynda.

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#15) On January 14, 2009 at 11:27 AM, buildgreen (< 20) wrote:

My general understanding of inflations cause are as follows.

 

"Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply"  - Wikipedia

Can anyone tell us what the money supply is currently. With the massive multi billion dollar write downs would that not take money out of the money supply. Thus what are the facts of our actual money supply including the write downs and the printing?

 

 

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#16) On January 14, 2009 at 11:27 AM, buildgreen (< 20) wrote:

My general understanding of inflations cause are as follows.

 

"Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply"  - Wikipedia

Can anyone tell us what the money supply is currently. With the massive multi billion dollar write downs would that not take money out of the money supply. Thus what are the facts of our actual money supply including the write downs and the printing?

 

 

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#17) On January 17, 2009 at 8:11 PM, bullshiite (31.26) wrote:

How can inflation happen when the average person losses 30% of their home value and 40% of their portfolio?  If anything, there is going to be deflation because A) Anyone that had tangible assets has seen a significant reduction in their value and B) their is a constriction of credit, which means people can't increase their money supply (by household). 

For Example:  Lets pretend the US is an island of 100 people, each with $100.00.  Over the course of one year, a finacial collapse occurs that causes everyone to lose $30 dollars so now everyone has $70.  So the government says, we are going to print $1,000 dollars for the island.  Now everyone has $80 dollars.  That has not caused inflation but instead prevented deflation from driving down the $ value of pineapples, sun tan lotion, ect.  

Although a simple illustration, is it that different from what is occuring right now? (stock loss, real estate depreciation, and the several trillion $s put into the stimulus package)

 

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#18) On April 23, 2009 at 11:57 AM, OldEnglish (28.01) wrote:

No one will read this but:

"How can inflation happen when the average person losses 30% of their home value and 40% of their portfolio?"

Easily. Also unions are irrelevant to inflation. How unionized is Zimbabwe? The AFL-CIO had the lock on Argentina? No.

A lack of confidence in a currency combined with large government outlays is all it takes.

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