US Dollar Longterm Chart

Hyperinflation

Lesson In History

When governments cannot borrow any longer, When no one wants to lend the government any more money, the government will resort to the printing press to pay the bills. The most famous one was the Weimer Republic (Germany) hyperinflationary episode, and the latest example is Zimbabwe. The end result is always the same, Hyperinflation.

Chart showing wholesale price of goods during Weimer Republic Hyperinflationary Episode.

Here is an interesting photo taken in Zimbabwe showing how worthless paper money is once hyperinflationary episode has started.


With the US Federal Reserve Bank Chairman Ben Benankie fully determined to print the US Dollars into oblivion in order to continually fund the ever escalating US budget deficit, even going up and dropping it from a helicopter if he has to, the US is sure to experience hyperinflationary episode just like what Weimer and Zimbabwe went through, unless of course he changes course before the onset. For now, so far so good. But the problem with hyperinflation is that no one can ever know exactly when it will start.
 

Hyperinflation by VICTOR SPERANDEO, Barrons – Dec 18, 2010

Economist Philip Cogen defines hyperinflation as a non-annualized inflation rate of 50% or more in a single month. This rare occurrence should not be confused with the inflation the U.S. went through in the 1970s, which was moderate, almost normal, by comparison.

Unlike normal inflation, which may be attributed to a variety of factors, hyperinflation has a single cause: It occurs when a government cannot borrow money because its debt has risen so much that investors believe they will never be paid back with close to the same purchasing power. As a consequence of this flight of confidence, such a government is forced to print money to meet its obligations. This further undermines the value of its currency, often culminating in a frenzied collapse. That is hyperinflation, and only governments and central banks cause it.

The first occurrence of hyperinflation was in France between 1789 and 1796, when the revolutionary government paid its bills with paper and forced its creditors to accept payment or be guillotined. Since 1920, there have been 29 more hyperinflation events around the world, the most recent being in Zimbabwe beginning in 2007. From Robespierre to Mugabe, government profligacy and the printing of money were the chief causes.

U.S. government debt is now over $13.7 trillion (not including estimated states’ debt of $2.8 trillion and agencies’ debt of $3.0 trillion). The average rollover period for the debt is 49 months. With recent deficits running over $1 trillion a year, the Treasury issues new debt and refunds old debt at a rate of about $4.3 trillion a year. A nation needs to inspire a lot of confidence to keep that Ponzi scheme alive. Unfortunately, markets know that even the U.S. government will print money to meet expenses when necessary.

Why the World Is Financially Doomed in Four Charts

By Charles Hugh Smith Of Two Minds . Com


The global economy is doomed to implosion, and here are four charts which explain why.


Though the complexities may appear endless, the global economy's coming implosion is really fairly easy to understand: here are four charts which do the heavy lifting. It boils down to these basics:

1. When money is dear and difficult to borrow, then productivity and capital accumulation are encouraged, speculation, malinvestment and debt-based consumption are discouraged.

2. When money is "free" (zero-interest rate policy) and liquidity is unlimited, then the opposite conditions hold: speculation in risk assets, malinvestment and debt-based consumption are all encouraged, and productivity and capital accumulation are heavily discouraged.

3. When debts exceed the value of the underlying assets, the only way out of the Tyranny of Debt is to write off the debt on both the borrower and lender's balance sheets, wiping out their capital via liquidation and bankruptcy.

4. The "extend and pretend" policy pursued by all major nations is simply transferring the impaired debt from private hands to the taxpayers (public debt), crippling the economy with higher taxes and higher debt service.

5. The Central State's "extend and pretend" policy requires heavy borrowing every year to prop up the status quo, pushing the Central State (or equivalent, i.e. the Eurozone) into an inescapable double-bind: either continue increasing public debt and cripple the economy with high taxes and high public-debt servicing costs, or let the financial status quo of "profits are private, losses are public" implode.

The first path leads to default, as the Tyranny of Debt cannot be masked for long, while the second path wipes out the Financial Power Elite which feeds the politicians.

Here are the charts. Note how the speculative economy created the illusion of rising wealth for the bottom 90%, an illusion stripped away by the Default Economy.

In essence, the Financial Power Elites profited immensely from creating this illusory wealth which gave the bottom 90% the false sensation that their declining earnings and purchasing power were being offset by the "magic" of asset bubbles.

Then, when the bubble popped, the Financial Power Elites transferred the impaired assets to the taxpayers, a process which is still underway. The politicos of both parties are complicit; behind the simulacra of toothless "reforms," this process proceeds in myriad ways (Bank of America transferring toxic debt to Fannie/Freddie, etc.) 

Behind the smokescreen of conjuring a "wealth effect" to foster more consumption, the Fed's purchase of Treasuries (QE2) serves this transfer-of-debt-to-the-public process.

Barron's: US will see Runs on Treasury's, Hyperinflation

Investors in U.S. debt around the world are worryingly near a "psychological breaking point" that could force a "run on the bank" against Treasurys.

If that happens, hyperinflation quickly follows and gold will soar much, much higher from its now record-setting levels, argues author and longtime trader Victor Sperandeo in the latest issue of Barron's. Sperandeo has traded for many top investors including George Soros.

Full article http://www.moneynews.com/StreetTalk/US-Run-Treasurys-Hyperinflation/2011/01/05/id/381925

2011 = Euro Zone Economic Collapse

My Economic Theme for the first half of 2011 is the "Euro Zone Economic Collapse", to be followed by the United States Economic and Currency collapse in the second half of 2011

Here are the pictures of Euro Zone Sovereign Debt Yield from Mish's Economic Blog

Day of Reckoning - State Budget: A Must See video

Here is a must-see 60-Minute video by CBS on the current States and Municipals situation in the US.

http://www.cbsnews.com/video/watch/?id=7166293n&tag=related;photovideo

Bankruptcy/Default/Insolvency: The Economic Theme for 2011

The Economic Theme for 2011 will be Sovereign/State/Cities Bankruptcy/Default/Insolvency, continuing with Sovereign default in Europe that started with the collapse of Iceland, Greece and now Ireland. The next European countries in line for collapse are Portugal, Belgium, Spain and Italy.

Also expected to be occurring in 2011 will be the collapse of  the States and Cities in the US, which started with Prichard, Alabama.

Alabama Town’s Failed Pension Is a Warning as to what is coming in 2011. 

Prichard, Ala., presents a worst case for public pension funds: It stopped sending checks in 200

Here is a link to a full article by New York Times.

http://www.nytimes.com/2010/12/23/business/23prichard.html?_r=2&emc=eta1

In a CBS 60-Minute interview, Meredith Whitney said that hundreds of municipalities in the US may go bankrupt and default on their bond within 12 month.