“In the US we don’t have a back up system. Zimbabwe had the worst hyperinflation anyone’s ever seen. But, they survived. They had an ongoing economy. That was because of a black market in US dollars. We don’t have a black market in the US. There’s no backup to our system.” — Mac Slavo, Market Oracle
John Williams of Shadowstats has repeatedly warned that our economy is not doing as well as some would have you believe. From unemployment to GDP to current and future liabilities, there are fundamental problems that will not be resolved anytime soon – in fact, they’re likely to get worse.
The end result according to Williams? A hyperinflationary depression.
We’re already seeing food and energy prices rise significantly – with price jumps of 30% or more year-over-year. We can argue about deflation or inflation, but we will not be sure of exactly what comes next until it actually happens. John Williams provides some recommendations, all of which we’ve discussed before, for preparing yourself and loves ones for the possibility of a complete meltdown in the US dollar. Williams is a respected economist who has a high level understanding of the fundamental numbers behind our economy, so his forecasts and recommendations should not be taken lightly:
In terms of maintaining the purchasing power of your assets and wealth – and this is primarily a problem for people who live in a US dollar denominated world – Canada is not going to necessarily have this problem – you look to put your dollars in hard assets like physical gold and silver, getting the dollar into other currencies such as the Canadian dollar, Australian dollar, Swiss franc. Article above sources below at end.
Some have suggested that “printing” more money is a way out of this deflation problem. That would seem to work but here’s the problem — expanding the money supply is inefficient and uneven. Just look to the US, huge amounts of money have been injected and it really doesn’t trickle into the real economy. “Printing” more money just creates another bubble somewhere.
“Printing” money is really the problem that got us here. Can you imagine a situation where you printed so much money that the system ceased to function? That’s where we are now — the (US dollar-based) system is collapsing. True valuations cannot be determined. Crazy eh? they only abandoned gold 40 years ago. Expect more convulsions of deflation and inflation to continue. Sorry to say very few of us will get through this unscathed. Nowhere really to hide.
Prices can rise or fall for certain products or groups of products for various supply or demand reasons and that is neither inflation nor deflation. As Friedman and Schwartz famously stated “inflation [and deflation] is always and everywhere a monetary phenomenon.” The problem now is the same as at the beginning of the Great Depression, loose credit and too much money sloshing around the economy created a huge bubble which has now burst and led us into a debt-deflationary death spiral.
The money supply has contracted and unless Central Banks start buying back government bonds and flooding the market with currency we are, to put it in highly technical terms, screwed. If the real money supply falls, prices fall – on everything, including that house you just paid too much for. That is deflation. The amount of money you owe stays the same which means that in real terms you owe more. That is the problem with deflation.
Central banks can get us out of this mess and avert another great depression but in the long term there will need to be structural changes that prevent this from happening again. Remember all those sub-prime loans? Buying houses and cars with 0% down? Bidding stocks up to ridiculous multiples that could never be justified by even the most optimistic growth models? That’s why we’re here folks. To put a cultural facet to it, it was greed and the desire for that which was unearned – the instant gratification culture. This is karma.
How do I protect myself from these monetary problems?
Read the rest of this important 63-page deflation study now, free! Here’s what you’ll learn:
What Triggers the Change to Deflation
Why Deflationary Crashes and Depressions Go Together
Financial Values Can Disappear
Deflation is a Global Story
What Makes Deflation Likely Today?
How Big a Deflation?