Surely somewhere down the line, inflation has to rear its head.
That somewhere can be 10 years down the road or it could be tomorrow. My best guess is that it is well down the road. Japan fought deflation tooth and nail for 15 years. I asked Russ why their attempts at stimulation did not work. Don't think I got an answer yet (or I was too tired to remember the answer), but here is mine.
Japan simply kept tons of worthless debt on the books for too long and refused to wipe it out. Think about that for a second. People were way upside down on real estate, banks were upside down on bank loans ete etc ect. Part of it is culture and demographics as well. But that staggering amout of credit just became IMPOSSIBLE to inflate away. I believe we are headed down the same path.
Now, what would happen if the US gov't were to immediately default on Tbills? Offer to pay them back at 10 cents on the dollar. At the same time the US govt wipes out all debt accross the board. State, Federal, personal, corporate. (It does this by printing enough money for everyone to pay off 100% of their debts and giving it to them in a rebate check, with strings attached that said the money could not be spent other than to pay off current bills. We could go one step further and just have the govt send the money straigt to those that were owed anything by anone) With debts wiped out, the US$ in the toilet, and no one willing to lend to us at absurdly low interest rates, but with the FED printing money left and right, hell yes we are going to have hiperinflation.
Unless and until we see mammoth amouts of bad debts wiped out by one means or another, we are headed down the path of Japan no matter how hard we try to get around it. Now, the US govt can not wipe out private debts, but it could in theory send everyone a check as describe above, based on the amount of debt that everyone has and everyone would pay off those debts with cheap $.
I sense class warfare here really. We are headed the OPPOSITE way of what would wipe out those debts. We are passing or trying to, new bankruptcy laws (at the gall and on behalf of predatory credit card companies that extend credit to unworthy prospects and want to be GUARANTEED payment as well even if someone declares bankruptcy).
In order for us to see hiperinflation, some how some way there needs to be a redistribution of wealth from the super elete rich bankers and credit card companies etc, down to the masses of private citizens burried in debt and govts burried in debt.
Depressions wipe out debt. Tiny injections that we have done just keep the consumer spending without providing any means of getting out from the company store. The "Helecopter drop" of offering a tax credit to everyone to be used soley for the purpose of paying off all debts such as the end result would be no one owed anyone anything would indedd do it. Printing enough money to wipe out all debts AT once would certainly be hiperinflationary. Pissy half ass measures only get us deeper in debt.
Now who loses in that scenario:
Big Lenders primarily
Banks
FNM
Shareholders of banks and financials
Bondholders
Anyone that is debt free. Savings would be wiped out.
Foreign holders of TBills
I do not think we give a rats ass about that last group, and I am sure they are going to get totally fucked at some point but when?
Unless and until we are willing to force that mammoth redistribution of wealth, we are slowly headed towards the Japan scenario and not the Argentine scenario IMO.
Mish |
