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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Claude Cormier who wrote (43574)	10/16/2005 1:41:37 AM
From: mishedlo	Read Replies (3) of 110194

On debts, you are certainly familiar with the collapse of the Weimar Republic. Well they were burried under debt (mostly from the aftermath of WWI and the obligations put on them by the allies) and still managed to hyperinflate their currency. I do not know how they did it, but the 00's kept adding on their notes. Why can't the US chose that route beleiving that they can control high enough inflation to bail the system, without causing full destruction by hyperinflation. A lot of food for my thoughts on your blog. Thanks. I have explained this many times but not sure if you got to it yet. The problem with hyperinflation is twofold: 1) it would bail out debtors at the expense of creditors (banks and other lenders) 2) Carried on long enough it ends the game. ie. Bankers and the FED would put themselves and their wealth out to dry. That alone should tell you why it will not happen here. Germany was forced into it by demands from the US and UK and France etc to pay back war debts they could not pay back. We are nowhere near the point where it takes a wheelbarrel full of money to buy a loaf of bread. There is alos a difference now in that the bulk of debt in the US is consumer debt not government debt. Consumer debt is staggering. The govt (run by banking interests and other big business) has no intention of letting consumers off the hook as evidenced by the bankruptcy reform act. Yes the FED will fight deflation but ultimately they will lose because the only recourse (hyperinflation) will end the game. Finally, unlike the Weimar Republic, it is not just one major country printing away but the US, Japan, the EU, China, and the UK. Chinese banks are likely insolvent with bad loans. In the scenario where every country is printing, the US dollar can not fall against all of them. They can all fall against gold however. If 1% rates and GSE coining all that money in a housing boom did not remotely come close to producing hyperinflation, what will? Hyperinflation can of course be produced at will, but it would destroy those with the power to do it. Hyperinflation is not remotely likely. Japan's national debt went from surplus to a deficit of -250% of GDP all while deflation was raging. Mish

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