The U.S. Economy: Stand by for more worse news

“… The Fed created $2.5 trillion, rounding it off, in the crisis of 2008 -They doubled their balance sheet. Clearly, that money is sitting in corporate deposits and bank deposits. Once that money comes off the sidelines, then you’ll start to see what happened in Weimar, Germany from 1922 onward.

People forget what happened in the first couple years of Weimar, Germany …
They had very low unemployment. The big manufacturing centers of Germany were expanding and growing. The illusion of all this new printed money was great. It made everybody feel better. It’s kind of like right now in America. Corporations have never had more cash than they’ve had before.

But once that money starts building velocity and all of a sudden, prices start going up … Hyperinflation in its definition is when you see a 50% increase in price within a 30 calendar day period. I know this is going to really surprise you, but I believe by 2015 unless some serious changes are made, we will see months in 2015 where you will see inflation rates of 50% a month. If we stay on the course we’re on, hyperinflation is not just a possibility, it’s a certainty. …”

This ends Part 3 of my interview with Craig R. Smith by James R. Gorrie. - A long article called: “China, Gold, and the Dollar, The Other American Recession. Parts 1,2&3 at http://www.absolutewealth.com/. Part 4 to issue next Friday.

Billy T comment: This is completely consistent with my more than 6 year old prediction of a run on the dollar by Halloween 2014. I.e. in first or second quarter of 2014, the 2.5 trillion of FED created thin air money will start to emerge from corporate balance sheets, banks will be lending as FED is still keeping interest rates low at least until the second half of 2014. People will be buying, even unneeded expensive goods like yachts and campers as well as no longer keeping their belts tight.

This surge in demand will cause more hiring and salary increases as unemployment falls to ~5%. The economically ignorant masses will think the good times have returned, as briefly salaries grow faster than inflation, but with trillions pouring out into the economy, inflation will be rapidly accelerating. (The supply of goods can not increase as rapidly as the flood of circulating money trying to buy them.)

This lowering of the value of the dollar will make those who sought “safety” in Treasury bonds, finally realize that they are not safe but a means to rapidly lose purchasing power. With the “good times,” lower unemployment, etc. the FED will, as promised, let interest rates rise in second half of 2014. That of course makes the price of Treasury bonds fall, and accelerates the losses of bond holders. Before Halloween 2014, there will be a rush to get funds out of bonds before even greater losses are taken and invest them in something that is safe. As the article quoted states: {People will} say: “I’ll cash that ten-year Treasury bill out that’s paying 1.6% and buy a farm down in Brazil.”

This liquidation of Treasury bonds adds to the circulating money made by the FED´s 2.5 trillion coming out of banks and corporate accounts, making more than 6 trillion dollar surge in money available. – I.e. the accelerating inflation that soon turns into hyper-inflation. I.e. the history of 1923 Weimar, Germany will repeat. - A collapsed economy in depression with hyper-inflation. Despite this being a historically known combination, many will tell you that hyper inflation can not exist simultaneously with depression – they will learn from direct experience, if not from history, that it can.

SUMMARY: my predicted, "worst ever" economic disaster in US and EU is coming just on schedule, as I predicted. China, some other Asian countries, and their suppliers of food stocks and raw materials, such as Brazil, Australia, even Canada and several African nations, which have signed long-term delivery contracts with China, will only have a recession, not a depression.

 

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Indeed, Zimbabwe!

 

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Good modern example. I had in mind Germany of early 1920s. Below is what bad hyper-inflation looks like and at the worst, prices doubled ever 28 hours. Many employers paid workers in cash just before lunch time so they could immediately buy needs during their lunch hour instead of after 5PM, when cost would be ~20% higher!

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Probably at the worst in US´s hyper-inflation, it will take at least a week for price of your food to double. A little more than a decade ago, in Brazil, merchants only marked up the cost of their good every night by a few percent. It was a good time for me personally as many had Real, which they could not justify having*, so could not exchange in banks for dollars etc. I had dollars and needed Real, having recently moved to Brazil from USA.

* In your Brazilian tax return, you must list all your assets. If they increase more than your declared income, you will be investigated. Thus, many had Real in currency / cash, never declared that was losing value that they disparately wanted to buy dollars with. They could not, but I could put the Real into bank accounts, which were paying interest about the same as the inflation rate.

 

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From: Reuters:

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When inflation is considered American purchasing power is LESS now.

The run up above 80,000 dollars was due almost 100% to the housing bubble. Now that it has burst, in last three years (gap between bars of the chart) the current drop is 40% loss of "paper wealth."

 

No, that graph is in real 2010 dollars. Inflation is already factored in. At least try to read - and actually link - your own sources.

Bullshit: the housing bubble didn't start until after 2001. The stuff before that is dot-com boom. Try to keep your basic macroeconomic history straight, eh?

Also the numbers from 1983 and earlier cannot be compared to the later ones, because the Fed's methodology for collecting this data was changed. That's why the 1983 and earlier data is shown in blue, and the later ones in red. The fact that your source included an explicit comparison between 1983 and the present means that they are being dishonest or are simply ignorant like you are. Moreover, that comparison indicates that you did not get that graph from Reuters. The graphs on Reuters do not have the arrows pointing out an invalid comparison between 1983 and 2010. Where did you get that image, and why didn't you link to the actual source?

 

My sources does not mention any correction for inflation. The attribute to chart to Reuters but give no like to any Reuters article. The source is an article called:
"Wealth Withered? Here's The Surest Way to Restore it." By Teeka Tiwari - Creator: ETF Master Trader (a web page) and sent to me as Email from Institute for Individual Investors, in the weekly "Tycoon Report."
Read full text of article (and the chart) at: http://www.ifii.com/thetycoonreport/ plus links to some of their other recent articles

How do you (and others?) define the start of the housing bubble? I think home prices were rising more rapidly than the long term rate before 2001 and then at an ever increasing rate prior to the bubble bursting.

Note the graph is of the MEDIAN FAMILY INCOME. The "dot com" bubble, mainly increased the wealth of those with more than the median income (the richer upper half of Americans who had significant wealth invested in IT stocks). The 150,000 or so people in the lower half of US income, did not ride the Dot Com bubble up much and were not much hurt by it bursting.

Thus, I think my "basic macroeconomic history" is OK, as I realized the dot com bubble had little effect on the lower income half of all Americans. I.e. the rise of the MEDIUM INCOME prior to 2001, was not much due to the dot com bubble. For example, I bought town house in Columbia before 1983 bar of chart and sold it for more than twice the price less than a decade later. I.e. home prices were rapidly rising (compared to long term average rate) long before 2001 as part of an accelerating bubble.

 

Sounds like your source is crap, then.

There are a variety of ways to do that, but the consensus works out to the bubble beginning around 2000-2002, after the dot-com bubble burst.

http://en.wikipedia.org/wiki/United_States_housing_bubble

In particular, the housing price index graph at the top right of that page (attached below) makes it pretty clear.

I don't think you will find that the data bear out that supposition.

No it isn't. It's of Median Family Net Worth.

I do not think that is accurate - there are plenty of ways for soaring equity prices to result in increased wealth in the lower segments of the economy. It drives up consumption, housing prices, employment, etc. It's not like equity investors are locked away on some island, isolated from the rest of the economy. The rise in median family net worth is visible in your graph, after all.

Moreover, those net worth numbers include people's retirement accounts - which contain plenty of equity holdings.

What are you talking about? The gap in your basic macroeconomic history was in your understanding of which booms and busts happened when. You had the housing bubble starting in the early 1990's in the post I was responding to. That was the dot-com bubble. The housing bubble came after that, starting in the early 2000's. Now you're simply inventing preposterous theories to make the data conform to your previous mistake (insisting that the dot-com bubble didn't affect median household net worth, backdating the housing bubble to the dot-com bubble, etc.), all without any supporting evidence. What you "realized" there is an extraordinary assertion that flies in the face of basic economics, and for which you have provided zero supporting evidence. It's just lazy, self-serving supposition on your part.

If you could summon the honor to recognize when you make a mistake and learn from it, you'd eventually stop making so many mistakes. But if you're going to insist on doubling down and inventing bizarre fantasies to avoid ever admitting error, you're going to remain stuck with your head firmly lodged in your ass.

 

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“…The US now has more people on government pensions than workers in the private workforce.
• As of June 2012 there were 111,145,000 in the private workforce.
• As of June 2012 there were 56,174,538 collecting some form of Social Security or disability benefit.
• The ratio of SS beneficiaries to private employees just passed the 50% mark (50.54%).

This chart, from the St. Louis Fed, shows us that the problem is rapidly growing. The accelerating growth in recent years is just going to increase, because the Baby Boom generation is just starting to retire … “
From: http://www.moneyshow.com/investing/article/1/GURU-28574/US-Economy-Still-in-Deep-Water/#

Billy T notes: Every 13 seconds another “baby boomer” retires, stops paying taxes, and begins to collect from Social Security.
There are 79 million baby boomers. They MUST start taking funds out of their tax sheltered savings plans (401k, 401b, IRAs etc.) called the Required Minimum Deduction, RMD. I have been forced to do that for years, but leading edge of 79 million boomers (at age 70.5 years) starts this October taking their RMDs.

 

Good thing we taxed them more than Social Security costs for decades, then, and saved the surplus to cover exactly such an eventuality.

 

False. Nothing was "saved up" The SS tax collected over he years from them was merged into the general funds of the government and spent (More than spent thanks to China being willing to lend to US - buy bonds)

What was saved up by SS was a growing set of promissory notes, stored in a deposit in West Virginia.

 

That is false, the Trust Fund was not "merged with the general fund." It loaned money to the Federal government, which it will now collect in debt repayments.

http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

Right - and now they will call those in, to pay the expenses.

It is ridiculous of you to pretend that such is anything other than "savings."

 

Yes it would be false to say the Trust Fund was merged into the general fund (what ever that is) but that is not what I said. I said:
"The SS tax collected over the years from them was merged into the general funds of the government and spent."
That is 100% correct. All the SS has is promissory notes.

These promissory notes are part of more than 50 Trillion dollars of total debt when all "off budget" item obligations are counted. They will be paid off with fresh printed, printing-press dollars having greatly reduced value, but not be adequate to pay the SS claims, which are indexed to the CPI.

 

You are being preposterously dishonest there.

That is not what the relevant accountants say, as given in my previous link. Since you have provided nothing to substantiate your assertion, there, I do not find it convincing.

Also you are mainly addressing potential growth in Medicare outlays in that "off budget" figure, which are not Social Security and are much longer-term issues (that figure is for unfunded obligations out through 2084) and with far more uncertainty about what will happen (we may well just trim Medicare benefits, or get healthcare costs under control with various reforms, etc. - we have decades to do such things, before that figure becomes relevant).

 

And who's going to pay for those 'debt repayments'?

Ah, the taxpayers.

You know, the ones of which there are fewer every year compared to the number of Boomers sucking money out of the system.

How is giving money to the government to spend in return for a promise that they'll increase taxes on future taxpayers to pay it back even remotely similar to 'savings'?

 

Welcome to sciforums. We need more who can think, ask questions, etc.

Nicely posed question. Lets see what Quad replies.

If he replies at all, which I doubt, I bet he does not have any realistic answer. Even if he calls for more printing press money for the repayment, as I have already pointed out, that won´t work. That will make more inflation and the Social Security payments are indexed to inflation (CPI) so the more they print, the more the government must pay.

 

"... The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest since 1965.

Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.

You may have seen recent headlines that a record number of Americans are either receiving disability benefits or filing to receive disability benefits. ..."
From: http://email.angelnexus.com/hostede...0fda850a81cfe0f80c353ab8bc2bc3b0&ei=soRYN48NM

PS to Edward M. Grant As I predicted in last post, Quad just did not respond to you astute observation that he was very wrong to call Social Security contributions "savings." He never admits to any errors.

 

Here's an interesting point I read about: with previous recessions, the US economy still had a strong manufacturing base when it recovered. Today, we don't really have a strong manufacturing base, so this may make a recovery tenuous at best.

 

So what? There's plenty of money in the economy to be taxed - much, much more than there was back when the Boomers were paying into the trust fund.

The point is not the number of taxpayers, but how productive they are as a whole.

In pretty much every way. The same way that giving money to a bank to spend in return for a promise that they'll extract profits from future borrowers to pay it back is, for example.

How is that dissimilar to "savings?" What is your definition of "savings?"

 

Or, better yet, let's not see that, but instead skip directly to pre-emptively attacking whatever we imagine that he might or might not say.

Apparently this counts as "moderation" around here.

How about you stop behaving like a petulant child, and try to behave like an adult who has been entrusted to moderate this subforum?

 

I replied to Grant's post as soon as I saw it.

I routinely admit errors when I make them. The fact that you are consistently wrong in labelling my output in error - or even, accurately understanding what I say - is just that.

I never characterized Social Security contributions, in general, as "savings." I referred specifically and exactly to the surplus payments we charged the Baby Boomers and put into the Social Security Trust Fund, as "savings," which they are. This issue has been accurately addressed by myself (and others) many times here in the past, and yet you persist in re-posting the same misconceptions over and over again. It seems that you are incapable of dealing honestly and honorably with this question, and are likewise pursuing some personal vendetta against myself. All of which is pathetic, and conduct unbecoming a moderator.

Also, do not refer to me as "Quad." I am not your buddy, and it is disrespectful of you to use a pet name for me in the process of stalking me and pre-emptively bad-mouthing me to newcomers. My username is "quadraphonics." That is how you are to refer to me, and not in any other way. Any further use of any pet names for me on your part will be reported.