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Category Archives: Inflation/Deflation

Foreign Currency Inflation Causes U.S. Dollar Deflation


Dangerous Deflation is Death to Debtors [courtesy Google Images]

Dangerous Deflation is Death to Debtors
[courtesy Google Images]

Forbes magazine recently published “Egypt Is About To Slash The Value Of Its Currency To Revive Its Flagging Economy”. According to Forbes,

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Egypt’s Finance Minister Amr El Garhy has said his country needs to move faster in dealing with its currency woes, opening up the possibility of a large and rapid devaluation of the Egyptian pound.”

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Big deal. Egypt is devaluing (inflating) the Egyptian pound. Who cares, right?

Q:  What’s the value of the Egyptian pound have to do with the U.S. dollar and U.S. economy?

A:  Actually, more than you might suspect.

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The “DEBT-based” Monetary System is a “RISK-based” Monetary System


Debt = Risk [courtesy Google Images]

Debt = Risk
[courtesy Google Images]

FORBES magazine recently published an article entitled “The Fed’s Monetary Monkeying Is Ruining Your Retirement And The Economy”. As often happens, excerpts from that article got me thinking. For example:

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• “Is there any way that NIRP (“Negative Interest Rate Policy”) make sense?

“ Maybe.

Central banks think NIRP will get people to take more risk.”

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What’s the Fed mean when it encourages people to take more risk? Drive without fastening their seat belts? Cancel their home owner’s insurance policy?

No. The Fed’s encouragement to take more risk is like telling a man to play Russian Roulette. However, in the context of this analogy, each “bullet” is an item of significant debt.

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The Gold Imperative


Got Gold? [courtesy Google Images]

Got Gold?
[courtesy Google Images]

Gold-Eagle.com published an article entitled “The Inflation Imperative” which stated in part that:

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“The western welfare states (US, UK, EU etc.) have borrowed more digital currency than can be repaid at current values. The choices are:

“1. Massive inflation: a bad choice.

“2. Default: an even worse choice.”

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In fact, these two choices could be more clearly expressed as:

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1. Covert debt default by means of massive inflation: a bad choice

2. Overt debt default: an even worse choice.

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Monetary Madness Part II—Perpetual Bonds


The Cure of Economic Calamity: Looney Tune Economics [courtesy Google Images]

The Cure for Economic Calamity:
Looney Tune Economics
[courtesy Google Images]

As seen in the previous article, the total value of negative-interest rate bonds has jumped from nothing to $13 trillion in just two years.

Although governments issuing negative interest rates bonds don’t have to pay interest on those bonds, they still have to repay most of the principal.

What a bummer. Wouldn’t it be great if someone invented a government bond that not only didn’t have to pay interest (as with negative interest rate bonds) but also didn’t even have to repay the principal?

Well, folks, they appear to have done just that. They’re called “perpetual bonds”. They’re hot off the press, and the concept seems straight out of Looney Tunes.

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Last month, Gold-Eagle.com published an article entitled “Gold and the Perpetual Bonds Era”. The subject was “perpetual bonds”–a concept I’d heard of for the first time only about a week earlier.

Judging from what I’d already heard and the Gold-Eagle article, it’s apparent that “perpetual bonds” are—like “consumerism,” debt-based currency, sub-prime loans, fractional reserve banking, deficit financing, negative interest rates, market manipulation, and “helicopter money”—just another manifestation of the madness that’s inherent in the concept of fiat, debt-based currency—and of government’s desperation to do something, try anything, that might work to avoid or postpone a coming economic collapse.

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Teeter-Totter Relationship Between U.S.$ and Foreign Currencies


USDX [courtesy Google Images]

USDX
[courtesy Google Images]

The “Group of 20” (G20) includes the world’s 20 biggest industrial and emerging economies. G20 finance ministers and central bank chiefs met in China on Saturday and Sunday (July 23-24, A.D. 2016).

According to the AFP (“US Warns Against Devaluation Ahead of G20 Finance Meeting”), on the Thursday before this G20 meeting:

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US Treasury Secretary Jacob Lew said that top economies should refrain from competitive currency devaluations–a message likely directed at China.

According to Secretary Lew, “The global outlook . . . underscores our focus on the commitment made at the last G20 in Shanghai to consult closely with one another on [currency] exchange rate policy, and to refrain from competitive devaluation.”

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First, the term “competitive currency devaluations” is misleading insofar as “competitive” signals something civil like a genteel, after-dinner game of Whist in the parlor. In fact, these “competitive currency devaluations” are almost as potentially serious and lethal as nuclear war.

(More, it’s conceivable that China’s “competitive currency devaluations” just might be enough to trigger naval conflict between China and the U.S. or even Japan in the South China Sea.)

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“Helicopter Money”


Helicopter Money [courtesy Google Images]

Helicopter Money
[courtesy Google Images]

Control of the economy is based on two sets of powers:

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1) The Federal Reserve wields the monetary powers which include control over interest rate and over the supply of currency.

2) The U.S. government wields the fiscal powers which include raising or lowering taxes, raising or lowering borrowing, and increasing or decreasing government spending on benefits, subsidies and wars.

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For the past year, we’ve heard the Federal Reserve say repeatedly that:

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1) The Federal Reserve has exhausted its monetary powers and is no longer capable of using previous, “conventional” monetary strategies like QE (Quantitative Easing; printing and injecting more currency into the economy) and ZIRP (near-Zero Interest Rate Policy) to stimulate the economy back to a “recovery”.

I believe the Federal Reserve’s claims that it’s currently helpless to do much more to “stimulate” the economy with monetary policy are true.

If the Fed’s not fibbing, then only the U.S. government remains to engineer an economic “recovery” by means of its fiscal policy. However,

2) The U.S. government is unwilling or unable use its fiscal powers to raise taxes and/or borrow more currency to provide enough additional “stimulation” to cause an economic recovery.

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Government and the Federal Reserve—In the End, can there be Only One?


Highlander1You might remember Highlander—an A.D. 1986 film that starred Christopher Lambert and Sean Connery. The film described an ages-old battle between “immortal” warriors. Its tagline, “There can be only one”, meant that all of the various “immortals” were destined to fight and kill each other until only one “immortal” survived.

In this article, I’m exploring the hypothesis that our two institutional “immortals” (the Federal Reserve and U.S. government) are destined (like Highlander’s “immortals”) to fight each other until only one remains.

Conventional wisdom tells us that the Federal Reserve and U.S. government work hand-in-glove and without fundamental conflict. However, when you stop to think about it, it appears that the current relationship between these two institutions should be so fundamentally adversarial that, in the end, only one can survive.

 

Debtors love inflation since it allows them to repay their debts with “cheaper” dollars. Almost every American who’s bought a new home since WWII has been encouraged to take out a 20- or 30-year mortgage by the promise of being able to repay their debt with “cheaper” dollars. Inflation is the force that renders dollars “cheaper” and thereby encourages us to borrow and spend.

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