SPECIAL COMMENTARY NUMBER 414
January 25, 2012
U.S. Hyperinflationary Great Depression Moves Ever Closer
U.S. Government and the Federal Reserve Effectively Have Destroyed
Global Confidence in the U.S. Dollar
Systemic-Solvency and Economic Crises Have Not Abated
Precursors to Ultimate Dollar Disaster Are in Place;
2014 Remains the Outside Timing for Same
Hyperinflation 2012 is the fifth in a series of related writings going back to 2006. It updates and replaces the Hyperinflation Special Report (2011) of March 15, 2011, which preceded: the U.S. government’s demonstration of a lack of political will to address the country’s long-range insolvency; the downgrade of the “AAA” rating of U.S. Treasury securities; an ensuing U.S. dollar panic, dollar support operations and extremely unstable U.S. and global financial markets; a temporary shift in market focus to Euro-era issues; and growing recognition of the ongoing and deepening economic and systemic-solvency crises. Nonetheless, the outlook has changed little. With the passage of 10 months since the last report (updated circumstances have been covered regularly in weekly Commentaries), events just have continued to move this pending ultimate financial crisis into much closer time proximity.
In turn, the 2011 report updated and replaced the Hyperinflation Special Report (2010 Update) of December 2, 2009, which preceded: the Fed’s formal monetization of U.S. Treasury debt aimed at debasing the U.S. dollar; the sharpest post-World War II annual decline in broad money growth; the pronouncement of an official end to the 2007 recession despite no meaningful recovery; passage of the Administration’s health insurance legislation; and the mid-term election. Yet, the outlook had changed little. With the passage of 15 months since the prior report (updated circumstances were covered regularly in weekly Commentaries), again, events just had moved the hyperinflation crisis into closer time proximity.
In turn, the 2010 report updated and replaced the Hyperinflation Special Report version of April 8, 2008, which was published post-Bear Stearns, but pre-Lehman, pre-TARP, pre-recession recognition and pre-2008 presidential election. The April 2008 report updated and expanded upon the three-part Hyperinflation Series that began with the December 2006 SGS Newsletter, which predated public recognition of the 2007 economic and systemic-solvency crises.
This missive includes significant new material in addition to much of the same basic text that was in the 2011 edition, along with revisions and updates reflecting the still-unfolding economic and systemic-solvency crises.
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Contents
Chapter 1—Overview and Executive Summary
Events Moving at an Accelerating Pace Towards the Great Collapse
Graph 1: Federal Reserve Notes per Ounce of Gold
Background
Has the Euro Been Used as a Foil Against the Dollar?
Impact of Fed Monetization of U.S. Treasuries in QE2
Graph 2: Fed Monetization of Treasury Debt
Graph 3: Core Inflation from QE2
Crises Brewed by Federal Government and Federal Reserve Malfeasance
Saving the System at Any Cost
U.S. Economy Is Not Recovering
Hyperinflation Nears
Chapter 2—Defining the Components of a Hyperinflationary Great Depression
Deflation, Inflation and Hyperinflation
Recession, Depression and Great Depression
Chapter 3—Two Examples of Hyperinflation
Some Lessons from History
Weimar Republic
Graph 4: German Paper Marks per U.S. Dollar 1922 to 1923
Graph 5: Log Scale, German Paper Marks per U.S. Dollar 1922 to 1923
Zimbabwe
Chapter 4—Current Economic and Inflation Conditions in the United States
Economic Reality
Structural Consumer Liquidity Problems
Graph 6: Merchandise Trade Balance
Graph 7: Household Income Dispersion
Graph 8: Average Weekly Earnings (1967 CPI-W Dollars)
Graph 9: Annual Median Household Income (1967 Dollars)
Graph 10: Median Household Income Index (Monthly)
CPI No Longer Reflects Costs of Maintaining Constant Standard of Living.
Graph 11: Annual Consumer Inflation, CPI versus SGS Alternate.
Early Impact of Dollar Debasement
Graph 12: Gold versus Swiss Franc
Graph 13: Gold versus Oil
Graph 14: Gold versus Silver
Income, Credit and Willingness to Spend
Consumer Credit Still Shrinking Net of Student Loan Surge
Graph 15: Consumer Credit Outstanding
Markets Are Flying Blind with Distorted Economic Reporting
Already in Depression, Economy Continues to Bottom Bounce
Graph 16: Real M3 versus Formal Recessions
Historical Perspective on the Economic Data
Graph 17: Year-to-Year Change Monthly Payroll Employment
Graph 18: Year-to-Year Change Quarterly Real GDP
Graph 19: Year-to-Year Change Annual Real GDP
Chapter 5—Key Economic Reporting Varies by Inflation Assumptions
Economic Reporting Free of Inflation And Inflation Corrected
Graph 20: Payroll Employment Level
Graph 21: Consumer Confidence
Graph 22: Housing Starts Beginning 2000
Graph 23: Housing Starts Post-World War II
Graph 24: Real GDP Level, Official Version
Graph 25: Inflation-Corrected Real GDP Level
Graph 26: Headline Real Retail Sales
Graph 27: Inflation Corrected Headline Real Retail Sales
Graph 28: Headline Industrial Production Level
Graph 29: Inflation-Corrected Industrial Production
Chapter 6—Historical U.S. Inflation and U.S. Dollar Debasement
Graph 30: Consumer Inflation 1665 to 2011
Graph 31: Log-Scale Consumer Inflation 1665 to 2011
Table I: Loss of U.S. Dollar Purchasing Power
Chapter 7—Federal Reserve, Systemic Solvency and Inflation versus Deflation
Preventing Systemic Collapse at All Costs
“Helicopter Ben” on Preventing Deflation
Monetary Base and Money Supply Growth
Graph 32: Monetary Base, Leve
Graph 33: Monetary Base, Year-to-Year Change
Graph 34: M3, Monthly Year-to-Year Change
Graph 35: Year-to-Year U.S. Money Supply Growth with SGS M3 Continuation
Banks Not Increasing Lending into the Regular Flow of Commerce
Graph 36: Commercial and Industrial Loans
Graph 37: Commercial Paper Outstanding
Inflation and Money Growth
Chapter 8—U.S. Government Cannot Cover Existing Obligations
Annual GAAP-Based Federal Deficits at $5 Trillion
Federal Debt and Net Present Value of Unfunded Liabilities Exceed $80 Trillion
Graph 38: Total Federal Obligations as Percent of GDP
Annual Deficits of $5 Trillion Are Not Sustainable
Table II: U.S. Government GAAP Accounting, Deficits and Obligations
Chapter 9—Hyperinflationary Great Depression
Move Towards Hyperinflation Accelerated by Current Fed and Government Actions
Lack of Physical Cash
Possible Short-Term Electronic Relief for Individuals
Barter System
Financial Hedges and Investments
Graph 39: Year-End DJIA, Current versus Constant Dollar
Graph 40: Log-Based, Year-End DJIA, Current versus Constant Dollar
Possible Official Actions and Responses/External Risks
Closing Comments—Other Issues
Political Considerations
Common Sense
Recommended Further Reading
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