When asked about the timing of hyperinflation in the United States Williams stated, “That’s the type of thing that could happen at any time, all of the fundamentals are in place.  I do think we’re going to have a dollar crisis.  I can’t give you the precise timing on it, but circumstances are negative for the dollar in terms of relative political stability.  When you look at our government here we can’t control the fiscal conditions.  Our trade deficit is continuing to deteriorate, that’s a negative for the dollar, inflation is rising on a relative basis, that’s a negative for the dollar.

The Fed although it is officially ending QE2, most likely is going to come back with a QE3 and that will debase the dollar and if we are going to debase the dollar the rest of the world generally is not going to want to hold it.”

Read or listen to the entire John Williams interview on King World News

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Overdose: The Next Financial Crisis

Global Research Video

http://tv.globalresearch.ca/2011/02/overdose-next-financial-crisis

Numbers Don’t Lie –

December 13, 2010 – For several months I have been warning that hyperinflation of the US dollar is looming.  The ominous signs of this impending currency train-wreck are becoming increasingly clear.

For example, crude oil is threatening to break above $90 per barrel.  Copper has broken through $4 per pound to a record high price.  The prices of many other commodities are also in uptrends. These commodities are not in short supply.  There is no shortage of oil or copper.  Rather, these high prices are the result of too much money printing, which if not quickly stopped by returning to a sound money policy will ultimately lead to hyperinflation.

Last week another important part of the hyperinflation puzzle fell into place.  Long-term interest rates surged, continuing their sharp upward path that began two months ago.  The 10-year T-note during this two month period has risen from 2.4% to end last week over 3.2%, a remarkable and therefore telling jump.

This rise in long-term rates lays bare the flawed logic of the Federal Reserve’s newly announced $600 billion so-called “Quantitative Easing” program supposedly designed to help the economy.  This new round of money printing is not going to help the economy, which has been hollowed out by years of debt financed consumption along with too little savings and production.  This money printing is serving only one purpose.  This central bank trickery is providing the federal government with all the dollars it wants to spend.

So despite the fact the Fed will be purchasing $600 billion of US government debt instruments, T-bond and T-note yields are climbing, a clear sign that investors are rushing to sell their US government paper.  Why?  Because they know the purchasing power of the dollar is being debased by QE, and more importantly, will continue being debased.

I have discussed this reckless monetary policy before.  “The [Federal Reserve] has one mission.  It is to make sure that the federal government obtains all the dollars it wants to spend.  If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them.  The Fed must print them.”

The following chart illustrates that the US government continues to spend and borrow recklessly.  Despite all the pump-priming by the Federal Reserve aimed at stimulating the economy and therefore increasing US government revenue, there has been no meaningful reduction in the deficit.

Federal expenditures remain far above federal revenue.  More worrisome is the resulting growth in US government debt – now nearly $14 trillion – much of which the Fed is turning into currency with its QE actions.  The transformation of government debt into currency by the central bank is the core cause of hyperinflation.

The dollar not only remains on the road to hyperinflation, the rise in commodity prices and bond yields mean that the dollar is picking up speed as it heads toward the fiat currency graveyard.  Remember, numbers don’t lie.  But the same thing can’t be said for politicians who refuse to accept reality or central bankers willing to experiment with the US economy just to test their chalkboard theories.

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…illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the current plunge in earnings and the recent 2.5 month stock market rally, the PE ratio has spiked to the low 120s – a record high.

Holy Shit! Time to by gold!

Tuesday, August 19, 2008

Being formally trained in both Accounting and Law I think this is a critical question to answer: whether the US$ is in hyperinflation?

A key element of financial statements is comparability. The International Accounting Standards (IAS) provide the accounting rules and are comparable to GAAP.

Standard 1 requires a presentation currency. Standard 21 provides for translation between functional and presentation currencies. The Bank for International Settlements under Footnote 14 of their Annual Report treat Gold as a financial instrument. For this analysis I will use gold as the presentation currency and the US$ as a functional currency and apply the relevant Standards.

Standard 29 provides “The objective of IAS 29 is to establish specific standards for enterprises reporting in the currency of a hyperinflationary economy, so that the financial information provided is meaningful. …The basic principle in IAS 29 is that the financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date.”

What are the elements and factors for hyperinflation?

Under IAS 29.3 the four factors are (1) the general population flees the local currency, (2) dual currency pricing is practiced, (3) prices for purchases on credit incorporate the loss of purchasing power and (4) the cumulative inflation rate over three years approaches, or exceeds, 100%.

First, under IAS 29.3 “the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.” Under 31 U.S.C. 5112 the Mint is required to provide ‘in quantities sufficient to meet public demand’ gold and silver coins. Due to exceptional demand and contrary to federal law the Mint has suspended both gold and silver coin sales. It appears a significant amount of the United States general population is demanding the inflation hedge currencies, gold and silver, in large amounts. Therefore, it appears this first factor is met.

Second, under IAS 29.3 “the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency.” In New York some merchants have begun pricing in and accepting other currencies. An article in February 2008 reported that “We had decided that money is money and we’ll take it and just do the exchange whenever we can with our bank, … We didn’t realize we would take so much in and there were that many people traveling or having euros to bring in. But some days, you’d be surprised at how many euros you get.” Robert Chu, owner of East Village Wines, told Reuters television. Gas station owner Gary Mallicoat accepts silver quarters. While the practice of pricing and accepting alternative currencies does not appear widespread among the general population the trend is starting.

Third, under IAS 29.3 “sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.” One of the easiest ways for businesses to compensate for the loss of purchasing power through the use of credit is to stop extending credit and require cash.

US Broad Money

This steep decline in the rate of growth of M3 has likely resulted from lines of credit being tapped out when the credit crisis began, lines of credit being revoked and an unwillingness or inability to borrow or extend credit. Therefore, it appears that, indirectly, the price of both sales and purchases are being modified to compensate for the expected loss of purchasing power of the US$.

Fourth, under IAS 29.3 “the cumulative inflation rate over three years approaches, or exceeds, 100%.” Because central banks have a conflict of interest and often shroud their operations in secrecy the use of their official numbers are unreliable. The only reliable currency is gold. It is subject to only exchange-rate risk and there are large amounts of above ground stockpiles indicating its primary use as money. Therefore, the relative price of national currencies and gold, absent central bank manipulation to the downside, should be a reliable indicator of the national currency’s inflation rate because of the purchasing power difference.

The average price of gold in:

• 2004 – $409.72
• 2005 – $444.74
• 2006 – $603.46
• 2007 – $695.39
• 2008 – $912.90 (Jan-Aug)

Thus the inflation rate of the US$, relative to gold, is:

• 2005 – 8.5%
• 2006 – 35.7%
• 2007 – 15.2%
• 2008 – 31.3% (Jan-Aug 2008)

The cumulative inflation rate from the 2005 average price of $444.74 to the 2008 average price of $912.90 equates to a rate of 105.3%. Because 105.3% approaches and exceeds the 100% required by IAS 29 therefore the inflation rate of the US$ relative to the stable and reliable currency of gold indicates hyperinflation. Additionally, the general commodity index has had similar triple digit changes.

CCI

CONCLUSION

Because of the flight from the US$ by a large segment of the population of the United States, the pricing of goods and services in foreign and metal currencies, changes in credit terms to account for purchasing power differences and a cumulative three year inflation rate of 105.3% therefore with gold as the base currency the US$ appears to be in a hyperflationary environment when applying IAS 29.

If you are a CEO or CFO of a publicly traded company subject to SOX you may want to consult your general counsel and auditors concerning this issue. I doubt I need to remind you that ‘penalties for violations of to up to $25 million dollars and up to 20 years in prison.’ Better to be safe than sorry.

As evidenced with the Weimar experience the rate of inflation rapidly accelerates. Like a jet engine the faster it goes the faster it goes.

Weimar Hyperinflation

In a Deflationary Winter the last layer of credit to evaporate is the national currency through hyperinflation. It appears the evaporation through hyperinflation is heating up up.

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