The New American Currency

The dollar may already have been nuked, the new dollar is the "Amero"

Hal Turner muestra el Amero

I'm not sure how factual this is, but it certanly fits the pattern of a planned hyperinflation followed by a new currency. Hal Turner portrays this as a "New World Order" conspiracy to create the North American Union. I'm skeptical, but hey, whatever works, you know? Also, notice that this video was posted prior to the bailout mania.

My question: If this is true, how long with the "Amero" last before it's worthless? What will back the Amero, or will it just be another debt-backed security like the dollar? The hyperinflation cycle is often repeated two or three times before settling down.

UPDATE:
Hooookay, never mind. Hal Turner has gone a bit around the bend.

Hal Turner Show

Right or wrong, advocating violent revenge in a public forum is just dumb.

Revolution may be justified, but I don’t think we’re there yet. And any revolt must be based on supporting and defending the Constitution, not on vengeance. I hope most people remember that: Stand by the Constitution!

And the Amero is probably not quite real:

Amero Coin Con

The latest score: $7.7 Trillion

Well, that sure ballooned quickly:

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit

The initial relief package was $700 billion, and that was on October 3rd. Nobody was really surprised that it went over a trillion shortly after that. But this is amazing, not even 2 months later and we're talking ten times as much.

Fortunately gas prices have dropped, which will provide a little relief for the moment. But all of this cash is dispersing into the system right now, and in the next few billing cycles we'll see prices rising, so hang on.

Hat in hand

We beg for money:

US seeks 300 billion dlrs from Gulf states

If they lend us the money, it just pushes the problem farther back. There is also the little matter of what the Gulf states may want from us in return.

If they won't lend us the money, that would be a major blow to our standing as a reliable borrower. When the world loses confidence in the US and stops buying our treasury securities, we can resort to the button!

Obama and Hyperinflation

There is nothing complicated about this. Barack Obama wants to increase government spending in a major way to fund his various programs. To do this, he wants to increase taxes. Sounds reasonable on the surface. Problem is, raising taxes reduces GDP. The economy shrinks, and overall tax revenue is reduced. But the increased government spending remains. How will he pay for all this?

Like anyone who spends more than they take in, Obama will have to borrow money to pay for all these new or expanded programs. The government borrows money by selling treasury securities. People, firms, and governments around the world buy US Treasury securities because they consider the US to be a trustworthy borrower.

Now, what happens if people around the world start losing trust in the United States' ability to pay back it's debts?

A company or individual that cannot borrow will simply have to suck it up and do without. A government, on the other hand, has another option: If you don't have enough money and you can't borrow more, just print what you need!

So with a Democrat President and Democrat-controlled Congress, with a shrinking economy and reduced tax revenue, and with reduced ability to borrow, what will prevent them from ordering up a trillion new dollars? Or five trillion?

Or is this already happening?

Bailout Mania: We Are Cleared for Takeoff!

Suddenly, the media is tossing the word "Trillion" around a lot. This may be the start of the ramp-up:

Wall St. Bailout Could Cost Taxpayers as Much as $1 Trillion

Paulson plan could cost $1 trillion

Analysis: Washington's Trillion Dollar Wall Street Bailout

If this is indeed the ramp-up phase, we appear to be right on schedule for the short-duration hyperinflation scenario, which would actually be the best of a set of bad options.

I often wonder how much this was all planned out ahead of time.

Hyperinflation Scenarios

I'm projecting three possible scenarios for hyperinflation, based on reading the different historical accounts.

1. Short Duration: This is the soonest that hyperinflation could realistically hit.

2. Middle Duration: The "average" time scale scenario

3. Long Duration: Hyperinflation that is years away, but still based on current conditions.

This is not any kind of statistical analysis, just a range of values for planning purposes:

                 DURATION ESTIMATE
PHASE           SHORT     MID     LONG
Slow climb:     6mo       1y       2y
Ramp-up:        2mo       6mo      1y
Crazy:          1mo       2mo      5mo
Dollar Nuked:   1 day     1 day    1 day
Recovery        6mo       1y       2y

I wrote this in March, so taking these numbers and laying them out on the calendar, here's my predictions with March 2008 as a starting point:

SHORT-DURATION SCENARIO:
Slow climb:     (already happening)
Ramp up:        Sep 2008
Crazy:          Nov 2008
Dollar Nuked:   Dec 2008
Recovery:       Dec 2009 - May 2010

MEDIUM-DURATION SCENARIO:
Slow climb:     (already happening)
Ramp up:        Mar 2009
Crazy:          Sep 2009
Dollar Nuked:   Nov 2009
Recovery:       Nov 2009-Nov 2010

LONG-DURATION SCENARIO:
Slow climb:    (already happening)
Ramp up:       Mar 2010
Crazy:         Mar 2011
Dollar Nuked:  Aug 2011
Recovery:      Aug 2011 - Aug 2013

See previous post for more explanation. Mileage may vary. Feedback is welcome.

Sources:
http://en.wikipedia.org/wiki/Hyperinflation
http://www.sjsu.edu/faculty/watkins/hyper.htm

Discerning the Pattern

Hyperinflation has happened before, quite a few times. For that matter it's happening in Zimbabwe right now. Given that this is not a unique phenomenon, we should be able to learn from past data.

Looking at the historical record, there does seem to be a pattern to hyperinflation:

1. Slow Climb: 6 months to 2 years
2. Ramp-Up: 2 months to 1 year
3. Crazy: 1 month to a year
4. Currency Nuked: 1 day
5. Recovery: 6 months to years

In more detail:

1. Slow Climb: This is arguably "normal" inflation, but with a noticable upturn. By itself it doesn't guarantee hyperinflation, as inflation typically fluctuates anyway, but I have not found a case of hyperinflation that started with deflation. So an uptick in "normal" inflation may be a red flag that something bigger is on the way. Approximate time scale is 6 months to 2 years.

2. Ramp-up: This is the transition from "normal" inflation to something unusual. In this phase, the majority of people start changing their spending patterns due to inflation. It starts significantly affecting economic behavior. Approximate time scale is 2 months to 1 year.

3. Crazy: Full-fledged hyperinflation is truly crazy. This is the Weimar Republic, wheelbarrow full of money to buy a loaf of bread phase. There is no mistaking this one. The primary economic effort will be getting rid of your cash as fast as possible. Got money in your bank account? Wrong! Get rid of it now! Buy stuff as soon as you get paid, otherwise your paycheck is worthless by next week. Better hope your employer starts making COLA increases for each paycheck. This could last perhaps 1 month to a year.

4. Currency Nuked: Inevitably, hyperinflation is halted by revaluing the currency. There is no time scale to this, you just wake up one morning and bam! The Central Bank (The Fed in our case) puts the hammer down and says "The value of the currency is now [whatever]." It's that [whatever] that is critical. Often they will simply issue new currency at, say, 1000 times the value of the previous currency, and call it "New!". The "New Peso", the "Rentenmark", the "New Dollar", whatever. This is not a revaluation, it's just shifting the decimal point and it doesn't solve the underlying problem. Argentina tried this several times. The key to nuking the currency is to tie it down to something of real value. In the Weimar Germany, with typical German efficiency, the currency was revalued only once by tying it to a mortgage on all the land in Germany.

5. Recovery: Nuking the currency doesn't necessarily solve everything. There will be instabilities and hyperinflation could even start over again. Or you can get a recession. In the end, the solution is always for the government to maintain a sound, stable, and sustainable monetary policy while the economy sorts itself out. Recovery can happen fairly quickly (6 months), or could go on for years.

At this point, I'm not sure if we're in phase 1 or 2. Feedback is welcome.


Sources:

http://en.wikipedia.org/wiki/Hyperinflation
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999-2002)
http://www.sjsu.edu/faculty/watkins/hyper.htm

Fasten Your Seat Belts

Place your seat backs and tray tables in the full upright and locked position:

Global warming rage lets global hunger grow

Rice, death and the dollar

Notice this is about prices, not shortages. This is inflation, not scarcity.

Another factor here is that the real estate bubble is collapsing, and money is now flowing to commodities, raising their prices. Same thing happened when the dot-com bubble collapsed and all the money flowed into real estate. Only food commodities are more critical, and countries are clamping down on exports to ensure food security.

A Series of Unfortunate Events

In aviation safety, there is a phenomenon called the "Accident Chain". The idea is that aviation accidents do not just happen spontaneously, they are almost always caused by the convergence of several factors in a chain of events. The key for pilots is to percieve the chain forming and then break it before it's too late. When two or three things in a row start going sour on you, such as bad weather, followed by a malfunctioning instrument, followed by whatever else, you'd better get really alert and land, like now. Too many people have died because the kept pressing on until they got to the last link in the chain.

I've found the accident chain is a useful concept for any disaster, small or large. It's how history repeats itself, and then we look back and say "Why didn't we see it coming?!" "Why didn't we stop Hitler at the Rhineland?" "Why didn't we evacuate New Orleans sooner?" "Why did we launch the Space Shuttle when the o-rings were frozen?" etc. We need to always be looking for the accident chain.


Here it is:

1. Deficit Spending: Your unpaid credit cards are really nothing to worry about. The US Government is in hock to the tune of $9,444,399,908,743.20, as of April 15 (tax day!). Massive as it is, it hasn't sunk us all by itself. It's just the concrete block around our necks as we try to keep our head above water.

2. September 11, 2001: As horrific as that day was, it did not sink us. In fact we recovered brilliantly in the short term, which is cause for future optimism. But the consequences that followed have piled on the pressure.

3. Afghanistan war: A necessary evil, and another financial pressure on the US economy.

4. Iraq War: Regardless of your opinion on this war, you have to agree it is very expensive.

5. Oil Prices: This is very big, in the sense that rising oil prices push everything else up.

6. Ethanol debacle: A self-compounding problem, of breathtaking stupidity by really smart people, especially if you look into the physics of it. And remember: Ultimately it's all physics.

7. Food Prices: Oil prices + Ethanol stupidity + Low crop yields + Increased demand + Hey, we're talking about a "chain", right?

8. Credit/Mortgage crisis: There's more to come in this department. Where do you think the government getting the money for these bailouts? I mean, besides from China and you?

9. Some Random Future Event: We don't know what's the last link in the chain. Perhaps we're already there.

It's not too late to break the chain. It won't be easy, but hyperinflation isn't easy either, now is it? Here's what to do: Land the plane before it "lands" for you. Stop creating money out of thin air. Suck it up, you can fly another day.


Sources:

Accident Chain
AOPA
The Debt to the Penny and Who Holds It
Fuel Choices, Food Crises and Finger-Pointing
Global warming rage lets global hunger grow
Energy Fundamentals
Drought slashes Australian wheat crop
A Worsening Food Crisis
We Didn't Bail Anyone Out -- You Did

Nothing to see here. Move along.

It's painful watching a train wreck, especially when you're in the train.

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying as to official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
* Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.

Let's look at this:

1. Outright lying as to official statistics: Our government is blatantly obfuscating the CPI.

2. Suppression of publication of money supply statistics: M3 is no longer published.

3. Price and wage controls: Help me out here, I'm sure I'm missing a number of possibilities. Would the minimum wage count? What else?

4. Forced savings schemes, designed to suck up excess liquidity: Again, I don't know. How about Social Security? What do you think?

5. Adjusting the components of the Consumer Price Index: Clearly being done right now.

This is The Big Lie. Our own government, elected by us, is blatantly, brazenly, lying right to our faces. It is withholding basic, simple data. They don't want us to know what's really going on.

Now, I am definitely not a conspiracy theorist. I don't think any group, much less the government, is capable of successfully pulling off a secret plan more complex than digging a small hole in the ground. But there is no secret here. This is a conspiracy being done right out in the open, for all to see, and nobody's raising the BS flag.

I'm raising the BS flag.


Sources:

http://en.wikipedia.org/wiki/Hyperinflation
http://www.bls.gov/news.release/cpi.nr0.htm
http://www.federalreserve.gov/releases/h6/discm3.htm

Another Big Lie: The Money Supply

One of the big dumb statistics that economists mull over is the money supply. The money supply is what it sounds like it is: how much money is running around out there. Actually, some of that money is not running around, it's just stuffed under mattresses or behind the cushions of your sofa. Go take a look. But the vast majority of money is circulating around out there doing useful stuff. Even sitting in your bank account it's being loaned out to do stuff.

The money supply is one of those really big numbers, the kind of number they like to amaze people with. "If you stacked that many dollar bills on top of each other, it would reach Mars", etc. The relevant issue here is that the amount of dollars running around out there is the main determinant of inflation. When the government spews more money into the system, inflation is guaranteed to go up. There will be a slight lag between the actual spewing and a measurable increase in inflation, since it takes a bit of time for the stuff to diffuse out into the system. But that's a good thing because it gives us a little bit of warning ahead of time.

But there is no warning if they don't tell us about it. Read on.

There are several components that are used to describe the US money supply, labeled "M0" to "M3". Briefly, M0 is cash, M1 is M0 plus checking accounts, M2 is M1 plus savings accounts and smaller money-market accounts, and M3 is M2 plus the really big institutional accounts. M3 is the broadest measure of the number of US dollars in existence right now. As such, it is directly related to the inflation level.

Here's the Big Lie: The government has stopped publishing M3 data.

Discontinuance of M3

So in this day and age of virtually zero-cost collection and distribution of vast amounts of financial information, it has become too expensive to publish *a number*?!

Sources:

http://en.wikipedia.org/wiki/Money_supply
http://www.federalreserve.gov/releases/h6/discm3.htm
http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html
http://en.wikipedia.org/wiki/Big_Lie

A Little Standard Accounting

International Accounting Standard 29 describes four signs that an economy may be in hyperinflation:

1. The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.

2. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that foreign currency.

3. Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.

4. Interest rates, wages and prices are linked to a price index and the cumulative inflation rate over three years approaches, or exceeds, 100%.

Now, if I'm reading that last one right, and if my calculator ain't broke, that 100% spread out over 3 years gives you 33%/year, or 2.8%/Month. Gut-feeling: We are living those numbers right now.

As for item 1, how many of us keep a lot of cash in the bank?

Item 2: The US Dollar is at the top of the economic food chain. We don't have a real alternative, like Mexico, Argentina, or Zimbabwe. We think in dollars, not pesos. We may have to think in something else here soon, like gold or silver.

Item 3: This is an interesting notion. Perhaps we should start using our credit cards to buy gas, hm?


Sources:

http://www.iasplus.com/standard/ias29.htm

The CPI, For What It's Worth.

The official inflation rate, right now, is 4%. This is based on the CPI, or Consumer Price Index. The CPI "...represents changes in prices of all goods and services purchased for consumption by urban households." It consists of a standard "basket" of goods and services that is monitored to get an idea what prices are doing in general.

Except it's not standard. The list of items in the CPI "basket" changes regularly over the years. You will notice that energy and food are conspicuously not included.

Energy and food: NOT included in the CPI.

You and I could easily come up with a better guage of the inflation rate. My gut feeling guage is that it's really somewhere between 10 and 15%, based on buying real groceries and real gasoline, and generally living in the real world. What do you think?

So the CPI:

• Is not standard

• Does not include prices of energy and food

And yet it claims to:

• "[represent] changes in prices of all goods and services purchased for consumption by urban households".

Do they think we're stupid? Do we look stupid? Obviously we must.

This is an example of The Big Lie. The whopper that comes from a propaganda machine. People will believe big lies easier than small ones, that's how governments get away with outrageous behavior like hyperinflating money.


Sources:

http://www.bls.gov/news.release/cpi.nr0.htm

A Crash Course on Hyperinflation

Lets start at the Beginning.

Definition: Hyperinflation is inflation that is out of control. You'll see "inflation exceeding 50% a month" all over the web, but I can't find a good source for that.

My definition: Hyperinflation is inflation out of control to such a degree that extraordinary measures are necessary to cope with it, and extraordinary measures are necessary to end it.

Causes: Hyperinflation occurs when the government issues too much currency that is not backed by something of significant value. It's generally when the government prints money to pay it's bills.

In practical terms, the US Government doesn't "print" money to pay its' bills. It just makes it magically appear by selling Treasury securities to the Federal Reserve ("The Fed" - the central bank of the US - look it up). Uncle Sam calls up The Fed and says "Hey, we need another billion." The Fed writes a check for a billion dollars, hands it to Uncle Sam, who hands the Fed a billion dollars worth of Treasury securities. Treasury securities are IOUs that the government promises to pay back plus interest at some future date. Uncle Sam now takes that check and uses it to pay for government stuff. That's how the extra money flows out into the economy.

Here's the wierd thing: That check that the Fed writes? There is no billion dollars in the checking account. There's nothing. It's just a piece of paper. Somehow in this recursive self-referential yin-yang feedback ritual ceremony of exchanging one piece of paper (the Fed check) for another (the Treasury security), money is magically created!

When The Government and the Fed do this, we get inflation. When they do this too much we get hyperinflation.

Now, why would our beloved and trusted government do such a thing and how do they get away with it? Simple: To pay the bills. More bills + less income = create more money = inflation.

There are other factors that can cause inflation, such as rising oil prices which push up the price of everything else. But those factors by themselves cannot create hyperinflation. To really foul things up takes the power of government.

Sources:

http://en.wikipedia.org/wiki/Hyperinflation
http://en.wikipedia.org/wiki/Treasuries
http://www.sjsu.edu/faculty/watkins/hyper.htm
http://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html

Train Wreck Ahead

You've heard it before: The light at the end of the tunnel, oncoming train, etc.

The train is hyperinflation. There is no avoiding it*, ignoring it won't make it go away, and it doesn't care if you stick your fingers in your ears and hum loudly. The only real questions are: When will it hit, how hard will it be, and what can you do about it?

It's worth your while to read up on hyperinflation. I won't go into details right now, but simply Googling or Wikipediaing Hyperinflation will get you all you need to know. Do that, then come back and tell me that we aren't in trouble. Please, because I would much rather we not have to face that train.

Meanwhile, I'd like to get this conversation going. Hyperinflation has happened many times before. It's not the end of the world. You can survive it, and even profit from it if you aren't too risk-averse. But it will be a wild ride, and the outcome, like war, will always have major unforeseen consequences.

We can help each other through this. It's been said (who said it?) That "Many minds make quick work of uncertainty". I intend for this blog to be a tool to reduce the uncertainty of hyperinflation. I've got my own ideas and analysis of what's going to happen, but I'm just a regular guy. We put our heads together and we can harness that mysterious collaborative Internet Superorganism thing that surrounds us and binds us together, and come up with some useful answers. I want this place to be educational, informative, and predictive. As a truthful aside, I'm not above it being profitable. Like so many of you, I really don't have the time to maintain a blog, but if it pays I can make time. Please click on the ads (when I find time to get them up), and keep this place going.

Now, here's our mission:

1. Education: Learn about hyperinflation, what it is, what are the warning signs, what is the historical record, and how does it apply to the here and now? What can we do about it?

2. Surveillance: We need a master warning and caution panel, a digital dashboard that gives us the critical indicators at a glance, and then leads to more in-depth information.

3. Analysis: What does all this data mean? It it real or BS? Where are we now and where are we going?

4. Prediction: When is this train going to hit? How bad will it get? What will be the aftermath? I'll start off with my rapidly shrinking $.02, you add your own. We need some collaborative forecasting here.

So that's it. We have a major problem coming at us, but it's happened before. We can learn from the past, we can analyze the present, and be better prepared for the future. Just remember: This is not the end of the world. There is a wild ride ahead, but we can do something about it. Keep the faith and hang on through the next few years, and the crazy will pass. The other end of the tunnel may be better than you think.

*Well, there are other scenarios that I'll bring up, but work with me here, OK?