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goldminingXpert (29.46)

Why there will Not be hyperinflation.

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August 09, 2008 – Comments (7)

Karl Denninger absolutely nailed this one. He explains hyperinflation will not happen in the US and why goldbugs will be sorely dissappointed when their apocalyptic calls of doom are laid to rest next to Y2K and the killer bees. If you can't be bothered to read his article, I'll summarize: 

A banker faces two options when a homeowner can't pay, he can

A) foreclose on the house

B) ask the government to print up and then send the homeowner money to pay off his loan.

In case A, Karl writes: "In a deflationary environment the banker gets as much of your money as he can, and then he also gets the house! You lose big, but does he lose? Well, not really. He started with an asset (money) that was roughly the utility value of the home, and he ended up with the home itself, which has the same utility value. Further, the money he gets before you default goes up in value, as premium comes out of hard assets.

That is, he might have not only the house, but enough money to buy a yacht as well (at a distressed sale.) The banker makes money in terms of real value in a deflationary environment. You, on the other hand, being debt, get rammed.
                                                                                                                                                                      

However, in Case B, Karl writes: "[The banker] gets reamed in both holes. Yes, he has his $300,000 back, but what does that $300,000 buy? Oh, not very much eh? Go look at Zimbabwe, Argentina, or any other place where hyperinflation takes hold. The banker gets stiffed in a big way (as does anyone else who's business it is to move and hold money) because what once bought a house now only buys half a house, or less.

Those who argue that Bernanke will "hyperinflate" have a tiny little problem with their thesis. That thesis depends on Bernanke and the rest of the banks (who are, in fact, his masters as well as his servants) acting in a fashion that is explicitly against their own self-interest."

You think bankers want to intentionally devalue their own asset: cash? Of course not. The Fed, as the goldbugs point out ad nausem is a private institution owned by the banks. I highly doubt "Helicopter" Ben is going to intentionally bankrupt his fellow bankers. Hyperinflation is not going to happen. Gold and silver will not outpace the (single-digit) inflation rate and pay no yield. In the long run, commodities are lousy investments. The boom is over, get out for your own sake.

7 Comments – Post Your Own

#1) On August 10, 2008 at 12:10 AM, AnomaLee (28.60) wrote:

Well, I don't think anyone besdies a few of the ridiculous views here believe the U.S. will experience hyperinflation as formally defined as cumulative inflation rate over three years approaching 100%

Personally, I don't know if we'll see recession figures reported until they're further revised many months in the future. By then, the arguements won't matter.

However, there should be no doubt that U.S. and entire global economy is contracting and its forward expansion will be much slower than the past. The results from both of your scenarios are bad for any real economy.

I emphasize that there are a lot ridiculous views thrown around here and everywhere on the internet for that matter.... 

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#2) On August 10, 2008 at 11:07 AM, jahbu (89.95) wrote:

Unless you want the American public to PERCEIVE that there is going to be hyperinflation.  Then you can present your solutions.  Like privatization and a new currency the Amero.  If the problem isnt that big, noone will want to change.  But if the problem is HUGE then everyone will want them to save us.

I emphasize that there are a lot ridiculous views thrown around here and everywhere on the internet for that matter.... 

Even more ridiculous is the LIES the main stream media and our government report.

Of course we will not have hyperinflation,  they will implement their solutions and sell off our country before that.  But inflation will have to become much worse before the American people allow the North American Union, Amero, and Foreign countries buying up our assets that our fathers, grandfathers and greatgrandfathers built and paid for with hard earned tax dollars. But a good snakeoil salesman like Pete Peterson will convince us that this is the only option to avoid hyperinflation.

Jahbu

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#3) On August 10, 2008 at 11:11 AM, jahbu (89.95) wrote:

Bush Calls for New Highway Tolls,
More Private Funding of Roads

http://online.wsj.com/article/SB121737711076695281.html?mod=googlenews_wsj

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#4) On August 10, 2008 at 6:17 PM, RVAspeculator (29.03) wrote:

KD gets mad when you post this on his forum...

http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm

No "hyper-inflation" but sure as hell no real deflation either.

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#5) On August 11, 2008 at 5:32 PM, dexion10 (27.61) wrote:

goldminingexpert -  I added you to my favorites. Thanks for the comments and follow-up.

I'm hoping the coming financial and real estate sell offs will bump my score up into the 90's like yours!

Best!

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#6) On August 19, 2008 at 1:34 AM, Harold71 (22.90) wrote:

A topic of hyperinflation and not one word about the US national debt.  Just on and on about housing and the banking system.  Obviously it would be difficult to hyperinflate that way, though they did try to get the bubble as big as possible.

The US could wake up to hyperinflation tomorrow if China, or even a small holder of dollars, decided to liquidate.  $250-$300 oil.  $2,000 gold.  In a matter of a few keystrokes.

That's why I will *always* hold some gold and silver.  This is way bigger than the Fed or the US banking system.

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#7) On May 09, 2009 at 9:26 AM, jfk61 (< 20) wrote:

I would not be too quick to dismiss the possibility of hyperinflation.  The fact that it has happened in the past shows that even central bankers can make mistakes and lose control of a situation.  Hyperinflation is in no one's interest, but nevertheless it has happened and can happen again.

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