Martin Armstrong
NO HYPERINFLATION
Germany has been obcessed with the fear of hyper-inflation that was its worst nightmare of the 1920s. The United States lives in fear of deflation as took place during the 1930s. Both are still fighting the last war. Yet this period in which we are entering is unique for it is by no means a mirror of these events of the recent past.
We are suffering the simultaneous effects of DEFLATION and INFLATION, which can be called STAGFLATION. In other words, there will be no hyperinflation at this stage in the game and the increase in currency by the Federal Reserve using the "elastic money supply" tool, will not even be inflationary despite creating nearly $3 trillion.
How is this new world of STAGFLATION possibe? Debt & Marx! It is true that the national debts are exploding. This in isolation would appear to be inflationary as with the Fed creating almost $3 trillion. However, this is not a fish bowl. We are simultaneously suffering from a deleveraging of the economy that takes place during an economic decline where the paper values of tangible objects evaporates. We suffered in general a 60% destruction in money supply as defined by all things PEOPLE consider to be a store of value especially their real estate that serves as good collateral for loans. All the studies show people will spend more "currency" as long as they perceive that their net worth (money supply including home value) represents a profit amounting to savings – that store of value.
If we look at the peak in debt in 2007 in the United States, only one slice of the real money supply, the general leverage stood at nearly $60 trillion, This is based upon Federal Reserve data. If we now factor in the deleveraging of 60% we get a figure of $24 trillion. Of course, this is well below official estimates because they are not marking to market all debt. This would be at the most extreme nadir. Nonetheless, if the Fed increases the money supply by $2.3 trillion through its elastic capability, we can see this is like pissing in the wind – consquently QE1 and QE2 produced no inflation even if the deleveraging was only 25% say $15 trillion off the top rather than 60%.
In cycles, this is known as the Superposition Principle. We are experiencing a Destructive Inference whereby we have INFLATION being generated by government through the expansion of debt in the classic sense and the elastic money supply capacity of the Federal Reserve. This, however, is being offset by the DEFLATIONARY trend created by the deleveraging and fall in value of the "real" money supply composed of all things tangible including real estate, stocks, and even gold. If government were expanding the currency supply (currency and bonds) in isolation, we would have the risk of HYPER-INFLATION. However, since we are deleveraging still in the private sector, these two trends are offsetting each other creating a DESTRUCTIVE INFERENCE, which is why gold has NOT broken through that $2,000 barrier. These are two trends that are diabolically opposed to one another. Leaving out the Sovereign Debt Crisis of 1931 from the history books to further the Marxist agenda has clearly prevented us from moving on and understanding the whole economic world in which we live.
This is why government is becoming aggressive. It is fighting for its life and this trend of consuming more resources/capital to sustain itself is like a drug addict. It will not stop! Government will turn more and more against the LIBERTY of the people to retain its perceived power. It will not see its own actions as a cause and effect.
NO HYPERINFLATION
Germany has been obcessed with the fear of hyper-inflation that was its worst nightmare of the 1920s. The United States lives in fear of deflation as took place during the 1930s. Both are still fighting the last war. Yet this period in which we are entering is unique for it is by no means a mirror of these events of the recent past.
We are suffering the simultaneous effects of DEFLATION and INFLATION, which can be called STAGFLATION. In other words, there will be no hyperinflation at this stage in the game and the increase in currency by the Federal Reserve using the "elastic money supply" tool, will not even be inflationary despite creating nearly $3 trillion.
How is this new world of STAGFLATION possibe? Debt & Marx! It is true that the national debts are exploding. This in isolation would appear to be inflationary as with the Fed creating almost $3 trillion. However, this is not a fish bowl. We are simultaneously suffering from a deleveraging of the economy that takes place during an economic decline where the paper values of tangible objects evaporates. We suffered in general a 60% destruction in money supply as defined by all things PEOPLE consider to be a store of value especially their real estate that serves as good collateral for loans. All the studies show people will spend more "currency" as long as they perceive that their net worth (money supply including home value) represents a profit amounting to savings – that store of value.
If we look at the peak in debt in 2007 in the United States, only one slice of the real money supply, the general leverage stood at nearly $60 trillion, This is based upon Federal Reserve data. If we now factor in the deleveraging of 60% we get a figure of $24 trillion. Of course, this is well below official estimates because they are not marking to market all debt. This would be at the most extreme nadir. Nonetheless, if the Fed increases the money supply by $2.3 trillion through its elastic capability, we can see this is like pissing in the wind – consquently QE1 and QE2 produced no inflation even if the deleveraging was only 25% say $15 trillion off the top rather than 60%.
In cycles, this is known as the Superposition Principle. We are experiencing a Destructive Inference whereby we have INFLATION being generated by government through the expansion of debt in the classic sense and the elastic money supply capacity of the Federal Reserve. This, however, is being offset by the DEFLATIONARY trend created by the deleveraging and fall in value of the "real" money supply composed of all things tangible including real estate, stocks, and even gold. If government were expanding the currency supply (currency and bonds) in isolation, we would have the risk of HYPER-INFLATION. However, since we are deleveraging still in the private sector, these two trends are offsetting each other creating a DESTRUCTIVE INFERENCE, which is why gold has NOT broken through that $2,000 barrier. These are two trends that are diabolically opposed to one another. Leaving out the Sovereign Debt Crisis of 1931 from the history books to further the Marxist agenda has clearly prevented us from moving on and understanding the whole economic world in which we live.
This is why government is becoming aggressive. It is fighting for its life and this trend of consuming more resources/capital to sustain itself is like a drug addict. It will not stop! Government will turn more and more against the LIBERTY of the people to retain its perceived power. It will not see its own actions as a cause and effect.
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