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A Hard Choice: Inflation Kills the Dollar; Deflation Kills the Government

27 Sep

Inflation or Deflation? [courtesy Google Images]

Inflation or Deflation?
[courtesy Google Images]

“timmy” is one of this blog’s regular readers.  He recently posted the following comment on one of my previous blog entries:

 

“I’ve been hearing about the demise of the dollar for twenty years, as it continues to hit cyclical highs, with no end in immediate sight…. long term, sure, it must die. But not in the next year or three. There is no viable alternative– yet. Is gold saying inflation, as it continues multi-year declines…?? Wake up folks.”

 

I agree that the fiat dollar and the US economy have been amazingly resilient.  They’ve both defied fundamentals and reality for at least forty years.   In the 1990s, I was convinced that the whole system would collapse before A.D. 2000.  I was wrong.  Goes to show what I know.

Today, I look at the economic and monetary systems’ resilience with a sense of awe and resignation and ask, “Who is like unto the beast?”

But, beast or no beast, I remain convinced that the dollar’s goin’ down.  My prediction’s timing may be unreliable, but my notion of fundamentals still strike me as valid

•  My conviction that the dollar is destined to die is based on two premises;

 

1) Virtually every fiat currency dies within 40 to 70 years (statistically, the dollar is about due to die);

2) Since A.D. 1971, the fiat dollar has lost over 95% of its purchasing power.  The trend is obvious and undeniable.  If the trend continues and the dollar loses the remaining 5% of purchasing power, the dollar dies.

 

The fiat dollar’s long-term loss of purchasing power has seemed both inevitable and destined to destroy the dollar until after the price of gold peaked at $1900 in A.D. 2011 and then began falling back to current levels of $1,146.

Over the past four years, the dollar has revived.  The dollar “stepped back” from an inflationary oblivion and began to regain some of its former purchasing power.

But was that revival due to natural forces of supply and demand in the free market?  Or was the dollar’s recent revival caused by government and central bank manipulation of the prices of precious metals, commodities, stocks, bonds and interest rates?   Is the dollar stronger in itself, or stronger due to the “life support” provided by the federal government and Federal Reserve?

“timmy” asked, “Is gold saying inflation”?

I’m asking, “Is gold saying ‘deflation’—or is it saying ‘manipulation’?

If gold is saying “manipulation,” how much longer can the manipulation be sustained?  If the manipulation dies, can the dollar continue to survive or will it die, too?

 

•  The dollar’s been dying (losing purchasing power) for at least 44 years. It’s had a revival in the past 4 years, but that revival is artificial and a form or life support to prevent it from dying from the loss of its last 3 to 5% in former purchasing power.  Eventually, the “plug” must be pulled.  When it is, the dollar dies.

It could happen before the end of this year, but (as “timmy” says) it also might not happen for the next three years or so.  In either case, virtually everyone reading this comment will live long enough to see the fiat dollar’s demise.

And when that demise is officially announced, virtually everyone in the world will be shocked.    There’ll be no warning that the dollar will be terminated in six months or even six days.  The dollar will be here today, and gone tomorrow.   That “tomorrow” could be three years from now.  But it could also be three weeks from now.

If government is planning to announce the dollar’s demise, it will be one of the world’s best-kept secrets until it actually happens.  No one could know the date in advance, except a handful of the government’s most powerful men and women.

 

•  Government’s problem is that, while the dollar has gained purchasing power over the past four years, the resulting deflation has made everyone’s debts “bigger” since they must be repaid with “more expensive” dollars. The US gov-co is the biggest debtor in the world.  It admits to owing $18 trillion, but credible sources estimate that the national debt (including unfunded liabilities) is over $200 trillion.  In either case, the debt is too great to ever be repaid in full.

I see no way for the government to admit that it can’t pay the existing debts without also admitting that it’s bankrupt.  How long can the government refuse to admit that it’s already bankrupt?

The government’s national debt problem is aggravated by deflation.  As the dollar deflates and grows in terms of purchasing power, debtors (like the US gov-co) find it increasingly difficult to repay existing debts and increasingly difficult to borrow more currency.  If deflation is sufficiently persistent or large, debtors will be forced to admit they can’t pay their debts and file for bankruptcy.

If government wants to avoid admitting that it’s bankrupt, government can’t allow deflation to persist for long.

 

•  On the other hand, if government wants to sustain the illusion of repaying the national debt, it needs inflation to reduce the purchasing power of each dollar and makes it easier to “repay” existing debt with “cheaper” dollars.

Government’s problem is that it’s already used inflation to destroy 95% (or more) of the fiat dollar’s former purchasing power.  If government reinstates significant inflation, how long before the dollar will have lost 99.99% of its former purchasing power?  What happens when the world sees that the dollar is nearly worthless and becoming even more worthless, every day?

 

•  Government is facing a dilemma. It’s caught between the rock and the hard place.

The Rock:  If the government uses inflation to reduce the national debt, the dollar will lose the last 3 to 5% of its former purchasing power and presumably die.

The Hard Place:  If the government continues to cause deflation to strengthen the dollar and prevent its death as “world reserve currency,” the national debt will grow correspondingly larger and unpayable.  Eventually, deflation will force government to admit that it’s technically insolvent and legally bankrupt.

That dilemma appears to illustrate our immediate economic fate.  Government must either:

 

1) Inflate the dollar to make the national debt “manageable”—but if it does, the dollar dies; or,

2) Deflate the dollar enough to preserve its purchasing power and status as world reserve currency—but thereby push government, itself, towards having to admit it’s bankrupt.  I can’t see how the government could survive if it were forced to admit that it couldn’t pay the existing national debt.  A government admission that it’s bankrupt is an act of governmental suicide.

 

•  So what’ll it be, folks?

A deflating dollar and government bankruptcy?

Or an inflating dollar that allows us the illusion of repaying the national debt, but inevitably consumes the last 3 to 5% of the dollar’s purchasing power and thereby kills the dollar?

Government is darned if it does, and darned if it don’t.

Somethin’s gotta give.  Somethin’s gotta go.

Either the government expires in bankruptcy or the dollar expires in worthlessness.

In fact, if either scenario takes place, the other might soon follow.

Given this dilemma, you can see why the Federal Reserve continues to do nothing about interest rates.  If it does something, we’re screwed.  But, if it does nothing, we’re also screwed.

But the answer to this dilemma might be seen in the answer to a simple question:  Which does government value more—the survival of the fiat dollar or the survival of government, itself?

The answer to that question isn’t absolutely clear.  But, odds are, if the choice is between the dollar dying in inflation and government dying in bankruptcy, and if the government gets to make that choice, the government will opt for self-preservation and allow the dollar to die.

That conclusion implies that if the current episode of deflation can be controlled, it should be short-lived and inflation (if it can still be controlled) should soon after be restored.  This is not to say that the dollar will soon perish.  Sufficient inflation to finish off the fiat dollar might take one to three years.  Still, a sudden dollar demise is at least possible.

If the US government has to choose between its own survival and the dollar’s survival, it will choose to dump the dollar.

But whether a choice is made or simply stumbled into, it appears to me that we must have either inflation or deflation.  If we have deflation, the government must die in bankruptcy.  If we have inflation, the dollar must die.  As the Highlander might say, “In the end, there can be only one.”

The process of discovering which “one” will survive will be chaotic and frightening.  You’d do well to prepare for trouble because I don’t see any way to escape this dilemma without pain.

 

P.S.

•  On Thursday, September 24th, Janet Yellen, Federal Reserve Chair, attempted to deliver an hour-long speech. She couldn’t quite complete the speech due to some sort of internal, medical problem that affected her ability to concentrate and complete her thoughts.

Some thought she might’ve suffered a minor stroke.  Others thought it was just a dizzy spell.  She was helped off the stage, saw a doctor and reportedly went on with her appointments for the rest of the day.  Whatever her problem was, it does not appear to have been serious.

I wonder if Mrs. Yellen’s problem was induced by stress.

 

•  The next day, on Friday, September 25th, Congressman John Boehner surprised everyone by announcing his resignation from the both the office of Congressman and office of Speaker of the House of Representatives. His resignation will be effective by the end of October.

 

•  Congressman Boehner’s decision to resign seems every bit as surprising as Janet Yellen’s inability to finish her speech.

There’s at least a thin chance that both “surprises” were induced by stress.

So, I wonder—could it be that both events were triggered by the same stress?  Did we just see two of the most powerful, influential and knowledgeable people in the US government seeming to succumb to the same source of stress in two consecutive days?

Odds are, these two “surprises” were unrelated.  Their temporal proximity is almost certainly coincidental.

But, having a suspicious mind, I can’t help wondering if Boehner and Yellen both “know something big is about to happen”.  Could that “secret knowledge” induce so much stress that even pros like Boehner and Yellen would succumb?

Probably not.  Truly, the odds are that my suspicions are mistaken.

Still, I’ll be watching to see if any more particularly powerful men or women in government do something so surprising in the next month or two that they also seem motivated by enormous, but secret, stress.

 

P.S.P.S.

Boehner will go by the end of October.

Implication:  If Boehner really does know that “something big is about to happen” and he doesn’t want to be in Congress when it takes place, he presumably expects that “something big” to happen after his resignation becomes effective.

Maybe November, December—maybe first quarter of next year?

 

 

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11 responses to “A Hard Choice: Inflation Kills the Dollar; Deflation Kills the Government

  1. wholy1

    September 27, 2015 at 7:36 AM

    Typical thoughtful analysis, Al !
    While the “Lame Dream Tedia” (MSM) maintains the distraction of the ridiculous 25BP prime interest rate fiasco, the “Fraud Preserve” will continue it’s UNREGULATED, PRIVATE “facility windows” lending to the Goldman Hacks, JPMs ectl – QE to infinity. “It” – the Fed – will indirectly manipulate interest rate with creative things like NO RRP’s etc. The Banksters will continue to reclassify trillions in bond holdings from AFS to HTM to continue concealing the “mark to model” book cooking. What is the real significance of whatever 3-5% estimated remaining “value” of the FRN’s in this current relative Fluster-Cluck global financial gulag? “System D”, Folks, is alive and well. Learn how to participate in it or remain a victim of the [D]elites current-running pyramid scheme of asset consolidation/transfer by way of additional fiat currency issued to the economy AT INTEREST on the BORROWER’S AUTHORING SIGNATURE on the promissory note, WITHOUT the coupon amount – the INTEREST – being issued concurrently. What EVENTUALLY happens when the UN-ISSUED ACCRUING INTEREST AMOUNT is GREATER than the total amount of currency issued that is needed to service the debt?

     
  2. timmy

    September 27, 2015 at 7:58 AM

    Nice to be cited by you Al– I do agree in essence with your overall analysis. I’m trying to emphasize the immediate practical aspects. We should all absolutely be prepared for crisis or even catastrophe.
    I think most readers on here know what those steps are.

    It’s likely that one day the gov will try to hyper inflate away all their debt, or more likely just repudiate using the crisis as an excuse. But there is a lot of evidence of deflationary forces for the time being. Historically, it would be likely to have moderate deflation, then the crisis, then the hyper inflationary blow off, which is always relatively brief. It’s very very hard to know exactly where we are when you are in the middle of it all.

    The whole situation as you describe it is why the Fed cannot raise rates- they are trapped in their own box at this point.

    There is a great video on you tube by Bill Malonee on the nature of the debt/money system, and why they have no choice but to continue the path until it all breaks down. That’s why no matter who is in office, the debt ‘ceiling’ is raised over and over, as it has been my entire lifetime.

    One thing people rarely note- compare the average wage in say, 1950 or 1970, and you realize that the 95% drop in dollar value has been largely (but not entirely) offset by nominal wage increases. There is a gap- and that is deliberate on their part. “Profit” if you will, extracted from the people in the insidious creeping erosion of dollars.

    Let me put it this way- if all you guys had bought stocks the last 5 or ten years, and sold gold and silver, you’d be much much wealthier today. Of course that game of musical chairs can end any time… but look how long these conditions can persist.

    I say again: the stock market will continue generally higher (barring a nuclear war or major terrorist even) for the next year or two at least. Metals may come back- but it’s not evident yet. The dollar is strangely enough- one of the safe harbors for now. For now….

     
  3. timmy

    September 27, 2015 at 8:01 AM

    The Boehner thing is very strange. And he said it was after meeting with the Pope. Who is now espousing all the usual commie/NWO agenda items. And is beloved by Obama. Things are falling into place, and will definitely accelerate. Let’s all stay awake and aware of that aspect…

     
    • wholy1

      September 27, 2015 at 1:15 PM

      Ya think, just maybe that “legisTRAITOR” par excellence had a [very brief] twinge of guilt/regret how “It” sold out the very thing that provided “It’ so very much?

       
  4. truth rules

    September 27, 2015 at 8:40 AM

    Next big thing, at least domestically is Govt is going to stop the EBT (food stamp) program.

     
    • wholy1

      September 27, 2015 at 1:27 PM

      Las resort of the Banksters failure to start a civil/world war?

       
  5. harrytapp

    September 27, 2015 at 10:30 PM

    Like you have said Al…”What can’t be paid, won’t be paid” If we look at the U.S. Gov. Co. for the company that it is and consider any other business that is in the state debt financial ruin like Gov. Co. is, then the ONLY solution is bankruptcy. How they choose to play it likely towards self-survival in the long run will only hurt the people more. We have more than enough natural resources to sustain our population provided we secure our borders, get rid of illegals including Muslims who have their own ideology sleepers or not. Islam is akin to a roving nation with it’s own set of laws starting with the individual adherent up to it’s masses. Get rid of the fed reserve, trim the government setting term limits and lobbying. Get rid of the foreign bar/esquire law operating on our land and the military martial law flag of the sea on our home soil and wave the ensign/civil flag of the people/states. Enforcing the original intention of the 1st amendment which was for the government to not regulate the protestant denominations not to be inclusive of other religions (polytheistic) and enforce Yahweh’s laws which are included in the commands of Jesus under the New Covenant. Like Paul said “he who does not work will not eat” No more authentication sexual immorality and murder of our unborn.
    Am I suffering from delusions of grandeur??? Probably but these are the things that would make America great on the side of the Father

     
  6. cynthia

    September 28, 2015 at 7:56 AM

    “Money” in any ‘form’ is a religion and propaganda. The living man’s labor and nature’s resources are the original substance to all, before gold or silver there was focus on fair barter and trade without product mark up rather focus on value to life without “money.” One dreams the day all men shall return to building relationships with all life including other man (male\fe-male) out of Babylon fictions and illusions controlled by the 1% that created this dependence upon that which is dead illusion “… body politic and corporate…” and not our brothers and sisters.

     
  7. timmy

    September 28, 2015 at 3:19 PM

    Cynthia- do i hear a bit of Wattles in there?

     
  8. dog-move

    September 29, 2015 at 5:19 AM

    Zigging and zagging, that’s what markets do. The USDX has been in an uptrend since A.D. 2011, silver, gold the Yen and the Euro have been trending lower in that same time frame, trending inversely in relation to the USDX. However, if one were to observe the trend in place since A.D. 2001, the USDX is still in a downtrend and silver, gold, the Yen and the Euro are still in uptrends.
    Trying to determine whether we are in deflation or inflation may differ if one determines the underlying trend and the perspective timeframes. Yes, based on the USDX move since A.D. 2011 (medium term), we would be in a deflationary environment. Based on the move since A.D. 2001 (long term), we are still in an inflationary environment. The fact that silver and gold have been in pullback mode since A.D. 2011 as evidenced by the price action of late, may be obvious evidence of a healthy functional market that is oscillating ( zigging and zagging). The bull market in silver and gold may or may not have not even begun yet, what has occurred since A.D. 2001 is, I believe, the set-up for the new bull market. The massive shutdown of the mining industry is more likely a signal of the ending of the bear market which commenced in A.D. 1982. What one can objectively determine at this current juncture is, that we are still in an uptrend (long term) and in a downtrend (medium term). As with any market, stocks bonds, commodities, etc. it is like watching paint dry. One must hold ones position, be it long or short and if correct, stay the course.
    Most of the weakness in silver and gold is from the investors/speculators that bought at the top of the trend (long term) in A.D. 2010-2011, they are getting washed out now. When all the weak hands/speculators are washed out, the uptrend (long term) will resume with the strong hands/smart money benefitting from proper timing by buying down here at the bottom and knowing the (long term) trend is surely intact. The markets (all markets) never accommodate the majority. The majority was buying at the top in A.D. 2011 and they are selling now here at the bottom here in A.D. 2015. The zigs and zags throw most people off. There are swings in sentiment, bullish, and bearish sentiments. There is much bearish sentiment in regards to silver and gold right now, a positive!
    Watch the Yen, by its strength it may be signaling that the dollar and the market equity averages are going to exhibit weakness going forward (clearly evident). The Yen was strong today 9/28 and the equity markets weak. Conversely, silver, gold and the commodities should strengthen going forward. The zig that has been in place since A.D. 2011 is in the process of zagging. It appears the Yen is a good indicator at this juncture, the turn in the Yen may be indicating that inflation coming back again, and the stock market is now starting a new down leg.
    The transition into the 3rd-4th-5th world here in the Homeland will not be transitioned into well by the public, yet, it is already here and not many care to see it or even deal with it. Take advantage of the pause in the inflationary surge, the pause is commencing. It’s not a hard choice, accumulate silver and gold and unload debt instruments.
    It should be interesting to observe and watch what unfolds after the visit this week from the “King of Babylon”—a/k/a the “Richest Man in Babylon”, he has power to call down fire from heaven, Revelation 13:13. That’s, the “fiery serpent” of Number 21:6—more interest, usury and the charging of (higher) interest, “Neshak” 5391a, 5391b Zondervan NASB Exhaustive Concordance.The system must be in real trouble for them to bring King of Babylon out upon the world stage at this time. Now is a very interesting time to be an objective observer of world events. Strange that the words “false prophet” are being used in the media at this time, but not in reference to the “King of Babylon”.

     
  9. messianicdruid

    November 11, 2015 at 12:19 PM

    Very good and timely reading as well as the comments.

    America will survive the United States.

     

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