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John Burns
Posted 11/15/2012 12:02 (#2698648 - in reply to #2698418)
Subject: I hear you Von



Pittsburg, Kansas

Policy will determine which way we go. Current policy is obvious. Policy could change, as it did in 1981. When I see winds of that change I will change my outlook.

The massive inflation that has occoured in the last hundred years, or more specifically to our more recent era since the last default in 1971, has went into the stock market and bond market by and large. Increased prices of goods and services also reflect it, but the big money is in the stock and bond markets. This is where all the supposed wealth for our pension and retirement funds reside. Thought for the day: If the large demographic baby boomers wealth is tied up into bonds and stocks and they need to sell these to have retirement money to live on, who are they going to sell it all to over the period from now till the last baby boomer dies? The next generation which is smaller in size and has poor employment prospects? From this aspect, I DO believe we will have massive deflation. We will have a deflated stock market and a deflated bond market. Does this mean the stuff we need to buy to live like food, fuel and toilet paper will be cheaper? I don't think so, at least not if we keep creating new monetary units called dollars. As the stock and bond markets implode wealth will try to find some asset to maintain the purchasing power of that "wealth". That is the way I see it. I can see where that would be called deflation where trillions of wealth is destroyed because of lack of buyers in the stock and bond market. But I see no way that the powers that be will let the money supply be reduced enough to allow prices of day to day goods prices to fall.

I believe a day will come when the gold and silver held today will buy an awfull lot of stocks and perhaps other assets on the cheap. I don't beleive our living expenses will be cheap. Not measured in US dollars at least. Measured in gold or silver, maybe.

You said "If you look at his chart on medical spending you can see there is no way that can possibly continue regardless of how much money is printed. Spending has to match taxation and the deficit spending has to stop." I agree and disagree. Ultimately, yes it has to stop so I agree. But it does not have to stop untill both of the following conditions are met: 1. People and other governments will no longer support US government deficit spending by refusing to buy our government debt, and 2. once we can no longer sell our debt if we turn to money printing to pay the government bills the currency value is destroyed to the point people and other governments will no longer accept our currency in payment of debts due or in transactions for trade. Those two conditions are what happens in hyperinflation. So basically, deficit spending can continure as long as the Fed can sell govenrment bonds or people are willing to use the currency even when the Fed is actively destroying it. How long can that go on? Wish I knew. Will the Fed willingly decide to quit printing money and our congress willingly decide to balance the budget so failure of the currency does not happen? I certainly hope so. I have seen no progress to date. So if "deficit spending has to stop", the first step would seem that it at least should slow down. Have not seen that yet either. October's deficit rose 16 billion over last Octobers. For something that "has to stop", why is it getting bigger? It will stop in one of two ways. 1. voluntarily, or 2. involuntarily by the colapse of the currency. To date "2" is winning. I hope they choose number one instead. The current buzz word for number one is called austerity. We can see how well that is working out for Europe. I am guessing US citizens will have about the same reaction if and when number 1 choice is attempted.

That is the thing about hyperinflation. There is never enough money. The public always demands "more money". If only there were some more money we could pay out bills. If only our wages were higher we could pay our bills. The solution is more money. At least that is the way hyperinflation goes. The public demands it and the politicians are either too ignorant or too complicit to provide the proper leadership and education to prevent it. It is a fairly common thing actually. But of course, it can't happen "here". This time is different.

I will change my outlook of destination when our politicians grow the balls to set their sails into the wind and start tacking a course towards land instead of sailing with the wind.out to open ocean. No change of course to date. A lot of talk, but still no course change. Europe is attempting course change, and we see how well that is going over.

You said "I feel compelled to take actions based on a variety of potential outcomes by not betting everything all on Red 17 on the roulette wheel of life but on the other hand sometimes feel paralyzed to make a decision for fear of the as of yet unknown consequences."    I agree. You will never become a Donald Trump or George Soros by playing it safe, but my needs are modest and I'm perfectly happy with my station in life and will be tickled pink if only I get to keep it. Farmers in the 70's thought they had leverage figured out till the government changed the rules over night. Governments are apt to do just that, so one never knows what the future holds. Best to be spread out a little in ones position.

You said "Guess I should not feel too bad. Folks far smarter than me have pondered these questions their entire lives and throughout history.". Not only ponder it, but repeated the same mistakes over, and over, and over, and over, and over, again. See this and this again.

You said "On a 2nd note if hyperinflation is the game that is chosen. Do you suppose holding grain vs. selling is any way to protect against devalued dollars ?  I say yes in some regards but also see a diminished capacity by foreign buyers to pay ever higher prices............" And therein lies the problem. In Weimar the farmers were much better off early on, at least relatively to those on fixed wages, pensions, or incomes that were not keeping up with the inflation. The problem is, who would want to sell their grain if they knew it would be going up a dollar a bushel a day with no end in sight? The grain is holding its purchasing value or purchasing power but the problem is few can afford it. In the case of Weimar and France the farms eventually got pillaged because of civil unrest. It is not good when a very small portion of the population is living opulently while many are severely suffering or even starving. The suffering and starving get cranky. When Money Dies is a good example.

What the Paul Krugmans of the world fail to recognize is that, just like when a family lives high on the hog and beyond their means of income for too long on credit cards and debtand the results are never good, neither is the outcome of a country that does the same. With all their esoteric models they still can not escape what Dickens described in David Copperfield where Mr Micawber said "Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." Guess I need to actually read that book some day, LOL.

So at any rate, either continued money printing or not, I don't see this ending well.

John



Edited by John Burns 11/15/2012 12:15
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