Alarming

[Maurader1]

Hi MrNow, what exactly does

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Commodities are going parabolic, does anyone notice??

The rally yesterday is fake, synthetic, does anyone notice?

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mean? My economics is very poor...

If we believe the fed is corrupt, what is their motivation for this course of action? If I believe that hyperinflation will happen to the USD, and I hedge against it, and I am wrong, what are the consequences?

[HoldingFolding]

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Your smart

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Pure gold of a different ilk.

[laserboy]

Central bankers do not get to decide whether we get inflation or not. Just ask Japan. They have been giving money away for fifteen years and they are still battling deflation.

Inflation is NOT the result of central bankers "printing" money into existence. But rather the result of creditors lending money into existence. When our government borrows a few hundred billion dollars, that money is literally created from nowhere and introduced into the money supply. When that money enters our joke of a banking system, it gets re-lent and multiplied hundreds of times over. The natural byproduct of this, as Mr. Now stated, is increased asset prices and an illusory "growth" in the economy, as hundreds of billions of dollars of make-believe money is pumped into the system. This spiral of debt is what our entire economy is predicated on and has been for the last half century or so.

Total Debt as Percent of GDP

What is difficult to conceptualize is what comes next. In my view, deflation follows inflation like night follows day.

At some point in the near future, I anticipate...

A) that China and Japan will stop sinking hundreds of billions of dollars into our rapidly depreciating currency.

B) our banking system will collapse under mountains of bad debt and lending practices will grind to a halt.

These are both deflationary forces on a collosal scale. Think 1930s United States or 1990s Japan, only on a much grander scale. By the way, in both instances, the government tried to borrow and spend their way out and in both instances they failed miserably. Will Helicopter Ben fare any better?

Here's some more food for thought:

Rising commodity prices are actually a net DEFLATIONARY force for a net importer like the United States. As commodity prices go up, the money supply actually contracts within the system as our wealth gets systematically shipped overseas.

[John Shiznit]

Now, you never let the facts get in the way of making your argument.

inflation is simply a rise in the cost of goods (printing money can be the cause but not necessarily)

there are a school of economists led by milton friedmann who only beleive in looking at the growth of money supply.

[Mr. Now]

laserboy ,

Thank you for your thought-provoking post.

If the USD deflates, this means higher costs for the USgovt, who now makes payments on collosal debt in MORE expensive dollars. This is the opposite of making payments on debt in cheaper dollars via inflation.

So I ask, what do you think is in the USgovt self-interest now, regarding the USD?

As you say:

"...Think 1930s United States or 1990s Japan, only on a much grander scale. By the way, in both instances, the government tried to borrow and spend their way out and in both instances they failed miserably. "

The backdrop is one of deflationary forces at play here and now, as you say (think also, "cheap Chinese imports", etc)

Against this backdrop, isnt it in the USgovt best interest to take advantage of that cover to create inflated cash equivalents now, and flood the system with liquidity? Why or why not, in your view?

In your answer, please reference your knowledge of the historical record such as japan, Germany etc.

[ahnuld]

Article written on investing with inflation written last night.

http://moneycentral.msn.com/content/..._jubak.asp?msn

[adios]

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If inflation was as a big a problem as you suggest our interest rates would be skyrocketing. As there is a vested interest of a lot of bondholders of knowing the real inflation rate.

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Ah the bond market is basically selling off including the long end for awhile now. I predicted a bear market for bonds months ago and bonds have basically gone south since. There's always mixed opinions about the numbers and what they portend for the future. The U.S. has been in a disinflationary mode for a long time and it takes time to change the mind set of many investors. Ray predicted cost push inflation over a year ago. Looks to be an accurate prediction to me from my vantage point. Core CPI numbers are showing inflation has definitely ticked up.

[adios]

A one day rally doesn't mean squat and I'm sure you know that. FWIW I don't think the market is going too much higher from here as measured by the S&P 500 for awhile.

What Sniper is referring to in the future is a discontinuation of Fed tightening. We'll see what happens but the problems you cite put the Fed in a bind IMO. Price stability in the face of rising producer costs (rise in commodities as one contributing factor) which IMO invariably find their way into the cost of goods sold to consummers is a tall order without some sort of monetary restraint. Keep an eye on productivity numbers.

[ahnuld]

The only way to prevent inflation with rising commodity prices is a huge huge recession which is equally bad. This is a normal cyclical thing going on, and it hapens every 20 years or so. (at least it should) Tightening the money supply furthur would crush the economy in a year or 2. Id rather some inflation than furthur tighening to rein in inflation. If it gets out of hand, say 6-7% a year, then its time to really take the medicine and cut the supply. But raising the rates too much will just be too painfull.

The dollars collapse is great for america. Its gonna fix your economy so much and save your asses when commodity prices really kick in and bring a recession.

[chardog]

I love dire predictions qualified with "at some point in the near future". Care to narrow it down to a drop dead date Nostradamus? I need to know how long I have left to finish off my bomb shelter...