Hyperinflation

[Rickb]

Quote from scriabinop23:

Show me where default equals increasing valuation. Default = value goes to 0.

What I meant was increasing value of currency (strong dollar) makes debt more difficult to pay (value of debt increases in deflation - debt becomes a bigger burden).

So my forecast is, deflation will continue, we will just default in a year or two. Government is not going to get the chance to hyperinflate becuase they can't. The debt collapse is literally too big. I know is sounds impossible, but 400 trillion of dervities collapsing is not going to be able to be inflated out of. People need to understand the scale of the debt impolosion.

 

[scriabinop23]

Quote from Rickb:

What I meant was increasing value of currency (strong dollar) makes debt more difficult to pay (value of debt increases in deflation - debt becomes a bigger burden).

So my forecast is, deflation will continue, we will just default in a year or two. Government is not going to get the chance to hyperinflate becuase they can't. The debt collapse is literally too big. I know is sounds impossible, but 400 trillion of dervities collapsing is not going to be able to be inflated out of. People need to understand the scale of the debt impolosion.

This you are not correct about. The fed can print money to pay off all debts. The result is hyperinflation and sharp currency devaluation. There is no reason to default on the debt with that considered.

As well, the fed *can* avoid deflation. Money supply potential to avoid deflation is unlimited.

 

[dont]

Quote from jprad:

Not even close.

The latest figures show that 75% of the national debt is owned by domestic entities with the Fed itself on the hook for 52%.

Only 25% is foreign owned and that breaks down as; Japan 21%, China 19%, UK 11%, OPEC nations 6%.

Russia checks in at less than 3%.

http://en.wikipedia.org/wiki/United_States_public_debt#Estimated_ownership

Point Taken, I was referring to the 2Trillion dollars the Chinese have in foreign currency reserves I assume they recycle most of it into US treasuries.

Quiet possible they will default on domestic debt, but not on foreign owned debt. By the way a big devaluation is the same as a default

 

[Rearden Metal]

Quote from Rickb:

What I meant was increasing value of currency (strong dollar) makes debt more difficult to pay (value of debt increases in deflation - debt becomes a bigger burden).

So my forecast is, deflation will continue, we will just default in a year or two. Government is not going to get the chance to hyperinflate becuase they can't. The debt collapse is literally too big. I know is sounds impossible, but 400 trillion of dervities collapsing is not going to be able to be inflated out of. People need to understand the scale of the debt impolosion.

I respectfully disagree. Literal 'default' will not happen, because the gov't doesn't owe <b>money</b>; It merely owes dollars.
Big difference. Every last dollar owed will be faithfully repaid in full. Whether or not those dollars will be useful for anything more than furnace fuel is another story entirely.

Hyperinflation will be the inevitable natural progression of this crisis, as sure as interest-only ARM's were destined to result in mass-foreclosures... or have you forgotten why they call him 'Helicopter Ben'?

 

[zboy2854A]

Quote from scriabinop23:


As well, the fed *can* avoid deflation. Money supply potential to avoid deflation is unlimited.

If this is true, why didn't the Bank of Japan do it? They've languished in deflation for over a decade despite doing all the things we're looking at doing here, including slashing rates to 0, massive liquidity injections, government spending programs, etc.

 

[Rickb]

Quote from scriabinop23:

This you are not correct about. The fed can print money to pay off all debts. The result is hyperinflation and sharp currency devaluation. There is no reason to default on the debt with that considered.

As well, the fed *can* avoid deflation. Money supply potential to avoid deflation is unlimited.

While in theroy the goverment has unlimited ability to print, they are in fact now constrained by two factors 1)foreign governments, and the big one you need to consider 2)time.

I understand your logic, but I just think I don't think they will bother to inflate and just default. THere is really no difference both hyper and deflation are just defaults with different names.

They are not going to bother with hyperinflation. Default, then bring in new currency. All done in a year. Which is of course why they are meeting this weekend.

 

[scriabinop23]

Quote from zboy2854A:

If this is true, why didn't the Bank of Japan do it? They've languished in deflation for over a decade despite doing all the things we're looking at doing here, including slashing rates to 0, massive liquidity injections, government spending programs, etc.

Plenty of reasons.

1) Have you seen the Japanese savings rate and personal wealth stash? People save 25% or on that ballpark in Japan. That has afforded keeping their yields so low even on long term debt.

2) Interest rates aren't everything if people are in no mood to borrow (which serves to increase money supply). Look at M2 money supply. From 1990 (peak of their bubble) M2 went from 5T to only a little above 7T in this data set. (sure it isn't much higher now) In probably a 16 yr period that is a 40% increase.

http://www.econstats.com/r/rjap__m14.htm

http://www.federalreserve.gov/releases/h6/hist/h6hist1.pdf

Look at our comparable movement. From 3T to almost 8T of M2 alone. We beat them in money printing amidst no obvious deflationary crisis of our own (despite the spell after the early Bush years recession). The answer is Japan was not aggressive enough. If Japan had printed twice as much money, they would not have likely been steeped in the same deflationary mire. But of course, the Japanese have pride...

 

[thriftybob]

They talk about "national savings rates", and say China's is about 50%. I think it must include the buildup of foreign currency reserves, because if you look at Chinese wages being about 5% of US wages, and them paying taxes on those wages, too, it would be irrational to assume that they still save 50% of their gross pay after taxes and cost of living.

I suspect to some degree, Japan's number has the same flaw, ie including the buildup of foreign currency reserves as savings.

I also suspect that a large amount of that "national savings" is in US dollar treasury notes or bonds.

I would also think that a large chunk of that Federal debt is money owed to the Social Security fund.

As others have said, They are guaranteeing payment in dollars, but not what those dollars will be worth, and so some sort of devaluation is the only way out.

 

[rothschild]

Quote from thriftybob:

They talk about "national savings rates", and say China's is about 50%. I think it must include the buildup of foreign currency reserves, because if you look at Chinese wages being about 5% of US wages, and them paying taxes on those wages, too, it would be irrational to assume that they still save 50% of their gross pay after taxes and cost of living.

I suspect to some degree, Japan's number has the same flaw, ie including the buildup of foreign currency reserves as savings.

I also suspect that a large amount of that "national savings" is in US dollar treasury notes or bonds.

I would also think that a large chunk of that Federal debt is money owed to the Social Security fund.

As others have said, They are guaranteeing payment in dollars, but not what those dollars will be worth, and so some sort of devaluation is the only way out.

Do you see difficulty paying unemployment demand to a level that is enough for citizen to remain at home instead of riots or black market hypergrowth?

 

[rothschild]

Quote from dont:

Point Taken, I was referring to the 2Trillion dollars the Chinese have in foreign currency reserves I assume they recycle most of it into US treasuries.

Quiet possible they will default on domestic debt, but not on foreign owned debt. By the way a big devaluation is the same as a default

default on domestic debt..does it mean inability to pay unemployment payment to a level enough for citizen to eat properly? will there be enough to pay the transition to re-industrialization?