Sitting Bull writes:
I am a physician and have converted my entire portfolio to 50% gold and silver bullion and 50% quality mining stocks. So I am with you. What I am trying to understand is exactly how a 40% devaluation of the dollar will immediately affect American’s day to day lives. Can you help me with this? I have studied and studied, but I am trying to understand how prices will be affected for the average person initially. What happened in Mexico? What happens here? Does gasoline go up 80% overnight? Does food go up 80% overnight? I was a Peace Corps volunteer, so I can explain the inner workings of certain pacific island cultures in ways no text book can seem to get right. I was hoping you could do the same thing for me involving this. Thanks.
Sitting Bull,
For an understanding of hyperinflation and where we are headed, a proper understanding of Jim Sinclair’s formula, released nearly 8 years ago, is crucial:
1. First interest rates rise affecting the drivers of the economy, housing, but before that auto production goes from bull to a bear markets. -Check
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.
3. We have witnessed the Stock Markets rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the markets fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2, which is lower economic activity equals lower profits.
5. Lower profits leads to lower National/Federal Tax revenues. -Check ($1.5 Trillion annual deficits)
6. Lower Federal tax revenues in the face of increased National/Federal spending causes geometric, not arithmetic, rises in the National/ Federal Budget deficit. This is also true for cities. -Check
7. The increased Budget deficits in the face of the Trade Deficit increases the Current Account Deficit. Dramatic for the USA and Europe. (see what happens in Greece)
8. The Current Account Balance is the speedometer of the money exiting a country into world markets (deficit).
9. It is this deficit that must be met by incoming investment in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non domestic entities fails to meet the exiting dollars, euros, british pounds… by all means, then this specific country must turn within to finance the shortfall.
-And CHECK- This is QE to Infinity defined.
11. As the action under #10 starts to become reality, and a country turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions. (ex. Greece, Portugal) (Doc’s note: Operation Twist’s whole purpose is to prevent/ delay this inevitable outcome)
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of for example the US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
Currently, only a small minority of educated individuals understand this formula and the fact that point 10 is already well underway, and that point 11 is inevitable. Point 10 by itself is massively inflationary (an increase in the supply of money) but it requires widespread RECOGNITION to become hyperinflationary. This is the whole purpose of what Sinclair calls MOPE (Management of the Perception of Economics). Preventing the widespread RECOGNITION of point 10 and the inevitability of point 11 is key.
Once the public as a whole loses CONFIDENCE in the purchasing power of their currency (the US dollar in this case), this is the trigger for hyperinflation.
It is critical to understand that hyperinflation is NOT inflation on steroids, it is a CURRENCY EVENT- a sudden and rapid complete loss of confidence in the currency. Mathematically, this is described as the Velocity of a currency- the rate at which it is turned over. For example, during the hyperinflation of the Weimar Republic in Germany, workers were paid hourly, and their spouses stood outside the factory and immediately rushed to the market to purchase physical goods with the rapidly depreciating currency. When the velocity of a currency approaches infinity, the value of it by definition approaches zero.
Most also fail to understand that in nearly all cases, a period of significant economic decline or depression precedes hyperinflation. This is understood after studying Jim Sinclair’s formula above.
The resulting response of massive money printing to alleviate the shortage of goods and services as well as purchasers of debt can be seen in Peter’s hyperinflationary formula:
A prerequisite of hyperinflation and monetary collapse is that a disruption in the availability of essential goods occurs, today this could happen as a result of past reliance on expanding credit and fiat money temporally facilitating dependency on low cost imported goods many of which now feed primary needs leading to a commensurate loss of home production capacity with an inherent delay to the medium-term should such reengagement with manufacture become necessary as it would in the event of off shore suppliers losing confidence in reciprocal worth of monetary instruments offered in exchange for goods, and or shortage of essential goods may arise as a result of natural correction occurring, by way of example from the collapse of speculation driven credit markets and or as a result of collateral damage to the production cycle caused by inappropriate governmental action in further increasing money and credit supplies in attempt to drive a spontaneously occurring and necessary correction back in the direction of instability and in so doing distorting essential work ethics and disincentivising investment in the production cycle.
In my view the most probable sequence of events resulting in hyperinflation and monetary collapse is as follows:
1. A broad based shortage of goods that are thought essential develops and this is not relieved in time to satisfy demand.
2. Consumers trying to acquire essential goods that they believe are in short supply become fearful and are prepared to pay increasingly higher prices and stockpile these goods further increasing shortages and accelerating prices as a sellers market develops.
3. Prices rise for essential goods in short supply as an increasing proportion of the money supply circulates in these goods, also with increasing velocityand as most of these goods are consumables with high turnover upward re pricing quickly occurs.
4. The proportion of available money circulating in goods that are perceived as essential increases and the demand for less essential goods diminishes I.e essentials become disproportionately more expensive than the norm against non essential goods displacing money towards the goods most in demand further fuelling inflation,
5. The shortage of essential goods accelerates as manufactures increasingly focus on short term survival, longer term risk is avoided and investment in the production cycle is reduced accelerating 1.
6. The normal balance of demand for all goods increasingly prefers those goods required to satisfy primary needs and people engaged in making and supplying less immediately essential or non essential goods become unemployed who then pressures governments accelerating condition 9.
7. Eventually goods not immediately required but non the less essential are needed and rapidly increase in price as they also become in short supply.
8. Consumers with least money first find it increasingly difficult to secure essential goods, become frightened and are forced to allocate greater proportions of their money on essential goods and demand greater income,
9. The demand for money forced by need and fear becomes irresistible so governments feel insecure and provide increasing amounts of fiat new money,
10. Consumers first to spend the new money see some value but soon as this new money is distributed and its value is lost, the velocity of money also accelerates as people rapidly exchange money for goods, wealth is seen as best protected when stored as goods rather than cash further increasing price and reinforcing condition 9.
So from first Sinclair and next Peter’s formulas, we can understand that massive money printing by the government is not the trigger that causes hyperinflation, rather it is the loss of confidence in the currency by the people, WHICH THEN RESULTS IN A MASSIVE PRINTING OF MONEY BY THE GOVERNMENT IN A VAIN ATTEMPT TO ALLEVIATE the problem- which throws gasoline on the fire, and exacerbates the problem.
As to what this looks like in practice, we suggest you read LoneRangerSilver’s account of living through the Mexican Peso Devaluation, and Gonzalo Lira’s first hand account of the Chilean hyperinflation. Lira’s description of trading necessities such as a car for a valuable apartment demonstrate point 4 in Peter’s above formula.
The fact that Jim Sinclair’s formula is nearly complete demonstrates the eventual inevitability of Peter’s formula, and resulting hyperinflation as a result. The best way to protect one’s self from this is by storing your wealth in physical tangible assets such as gold and silver.
Hope this helps Sitting Bull.
-Doc
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This is scary. I had better rush out and buy silver! Wait, I already have. Hehehehehe.
Actually it makes me want to rush out and buy more rice and beans. And ammo.
I already have. whew!
Just added a Mossberg 500 to the gun supply, will be picking up a 9mm pistol next week. Need to order ammo but not in the budget until next month unless I part with a couple oz of silver.
Good job on the Mossy 500, Mary. It is a very reliable and potent short range defense weapon. It is also a real intimidator for those plotting evil. Looking down that barrel makes it look like a cannon.
Don’t scrimp on the ammo, though, even if that costs you some silver. Ammo is rising in price at about the same rate as gold and silver, so is a decent long-term holding in and of itself… at least in the places where people are still free to buy and own it, that is.
Don’t know if you have ever fired a 12-ga. shotgun, though. It’s got some kick to it. My son and I went out a few weeks ago and fired off about 50 rounds each plus some AR and AK rifle rounds. My shoulder was sore from that and when I took off my T-shirt to get a shower, there were black and blue spots on it. Not that this would be any problem in a combat situation but it might discourage some folks from practicing all they need to do. Practice is critical to shooting proficiency. It’s not everything a shooter needs but it is one of the more important ones. I like the Fiocchi brand ammo. It works well and is a little cheaper than some of the other brands. I use the 2.75″ shells with #4 buckshot. That has 27 pellets in it, so it has better coverage than the 9 pellet OO buckshot that is so common. It’s also less penetrating, so a better home defense round in case “friendlies” are behind a wall behind the perp(s).
A 9mm is also a decent weapon. If you have big hands, the double stacked high capacity mags will work well. If not, then the single stack mags are easier to hang onto. I got a little Ruger LC9 that is my hideout gun. It has a 7 round mag and a polymer frame. The trigger pull is long but other than that it is a pretty decent hideout weapon. My usual sidearm is a .45 auto. It’s real good but is also pretty good sized… not good for concealed carry but primo in a shootout.
Gasoline is actually in very tight supply right now. I don’t live too far from California and our local gas supply is only a few days (3 days max) when at full capacity in my town (Reno).
I’m no expert on this, I’ve only studied history so I can on theorize….
First thing to surviving and thriving in hyper inflationary scenarios is your own willpower. Second, you should look forward and plan 5-steps ahead. If you don’t already have a few months food supply of even the most basic of foods: Rice and Beans, you’re probably not on the right track. Gasoline or other fuel is probably quite critical as well. I sure as hell don’t want to be stranded anywhere without fuel to get the heck out of dodge if push came to shove. Bullets are great, but you better damn well know how to use your pistol in close quarters combat. If you have a gun, you better know how to use it the right way: Take a close combat tactical shooting course, I promise you that you won’t regret it and it might one day save your life or a loved one’s.
If you’re in the states: You better realize that ANYTHING imported or derived from imports is probably going to go up in price almost overnight. Hell, retail gasoline in California shot up from $3.86 to $5.79 in a single week. This is one of the early signs of hyperinflation. The hyperinflationary fuse was lit many years ago, but this situation could be something that shortens the already burning fuse by pouring gas onto it…. pun intended.
Imagine for a moment that gas in your neighborhood shoots up the same amount as California has seen this past week. Don’t you think this would be a major dampener on the local economy? Now imagine that 2 months from now we hit the hyperinflationary crisis and gasoline is $25/gallon. Filling at 12 gallon car tank suddenly is too expensive for most people. You better have your own emergency supply of gas. I certainly won’t want to be stuck in a city when people panic because of it…
I wonder how the apparent effort to abandon the dollar as the world reserve currency might affect or even cause hyperinflation? Suppose the big holders of our debt like China devest themselves of enough dollars to implement a full on abandonment of the dollar for purchasing commodities and international trade? What happens then? It seems to me that the rest of the world could easily lose confidence in the dollar before US citizens do. There would literally be hundreds of billions if not a few trillion dollars sloshing around the system with no home. Or, will abandonment of the dollar happen slowly enough to prevent this? I suspect that a basket of currencies including the dollar, will replace the dollar as the sole reserve currency.
I_S
It will likely happen slowly, a few asset overseas purchases here… some bilateral currency agreements there… but not likely that China/other UST holders would be able to divest all of its holdings suddenly – when the time comes they will take a hit, but obviously be better off then if they didn’t.
Look at latest update of US T holdings… almost neck to neck #1+2: China is flat whilst Japan increased pretty much to the same level as China.
China can walk away and let the US hit hyperinflation. They’ve got their own issues to deal with and the country most certainly will look after their interests first. Yes, I know they need the supposed trading partner… to export their goods to, but they won’t care if the dollar decreases in value as long as they are able to keep their domestic situation relatively under control. China will always place itself before the United States.
No matter what, China is looking at civil unrest from within. The US is also facing a similar scenario, but the US has one hell of a lot more guns, bullets, and battlefield hardened veterans. Its going to be both economically and physically bloody no matter where you reside during hyperinflationary unrest caused by the second round of the global currency crisis. People won’t rollover and die of starvation, there will be violence under such scenarios.
A major even in the USA would cause such a down turn in the dollar. This would cause world economies pegged to the dollar to feel that pain. (i.e. for example 9/11). If this were to occur, I believe world economies would want to unpeg from the dollar to preserve themselves. For example, I could see oil being unpegged from the dollar so they don’t follow us down the hole. Countries like Russia would want this since there economy relies on the high price of oil–especially now.
My eye is on the New Madrid fault line. If we get a massive earth quake there, we’re hosed for a long while and so is the economy and the dollar.
And if you’re of the religous persuasion, here’s an outline of US presidents that have responded negatively towards Israel and within days (or same day) a US natural disaster has occurred. If nothing else this should serve as sheer entertainment. I’ll see if this “holds water” next time Obama or our future president disses Israel publically.
http://www.pilgrimscall.com/US%20Actions.htm
This country has for the most part disregarded spiritual, religious, and any other subject that would require their attention to their conduct.
Indeed it has, Snowrider. This is why I believe that the coming financial disaster will be known as “The Time of Testing” in future generations. The farther we get from acknowledging God as our creator, the worse things seem to get. By now, it should be pretty obvious that this is a losers game and that if we truly want back in God’s good graces, then we’d better start acting a lot more civil.
We need to restore honor, integrity, love, and faith. These things have been virtually destroyed by the “if it feels good,do it” crowd and by those who think that humanity no longer has any need for faith in a supreme being. Now, more than ever, we do.
Hey,
I would like to chime in and point out that as we are also the Military Industrial Complex and Policeman of the world, these formulas may deviate from their extrapolated outcomes by instances
of Manufactured Incidents. We are most likely in a trajectory based on some type of model, a social architecture, if you will. I would suggest a little reading up on the CFR. It would be most likely that the product of globalisation is really just useful for a phase of acquisition, followed by a phase of repression, or compartmentalization where it will not be useful to the architects for those who wish to collectively respond to the dilemma to have coordinational access to one another. When the American Revolution began, we were a colony used as a consumer and supplier of raw materials, not permitted to manufacture so much as our own hats. The city of Boston was under British lock and key, with citizens being forced to house Redcoats as well as only being allowed to enter and exit the city with an acceptable story to their British gatekeepers. The degree of civility between British and Americans however, was an utterly stunning example of civilised gentility, not to be repeated by the next round of cats and mice. Anyways, in a repressive context, compartmentalisation is de riguer for anyone with a deathgrip on the steering wheel of power.
So as the bubble bursts, I would expect it to get chopped into smaller pieces, a micromanaged collapse, and one that will probably require pretexts invoking public safety. There are also the Black Swans and Black Plagues which, for example, SOTT.net in their Fire in the Sky category has pointed out, might well be a feature of past and future Solar System debris collisions with potentially global consequence.
On a positive note, it looks like Aquaponics might be a real game changer, too, check out
Portable Farms stuff for a great example of what I mean. Another really, really big barrier to simplification of our existences happens to be the battery. Ted Talks has stuff on Molten Salt and Virus Battery technology that, if and when implimentable would dump the petrochem empire on its butt. The ability of green tech to dynamically supply the grid requires energy banks, and the electric vehicle as well will never be the easy solution without a new generation of battery tech.
Those are just some examples of things that can or will fundamentally change the models we run on the world we live in, personally I see us being globally interdependent for things that should be locally produced, from shoes to snacks, as a reason to keep from speculating much about what will happen, and taking as much local control over our situation back as the top priority. I’m a General Contractor in California, and I see so much fragility in the infrastructure I’m not really sure how to project the future of this amazing place at all. Aftershock, the book, as obnoxious as it can be, seems to make some really excellent points. It kept me from stepping into the real estate opportunities that I see that are within my scope if things just stayed like they were and didn’t get worse. Right now, I’m focusing on Aquaponics, building community, and that other thing we do around SD, if you know what I mean.
All the best in your quest.
Know any good aquaponic links? I’ve actually been interested as a hobby to make a small setup.
@jj83… don’t know how this rates among the various sites that discuss this, but you might try:
http://www.friendlyaquaponics.com/
neato will check it out
thx
So what currency are you going to sell your Gold and Silver in/for when the dollar collapse?
Farm land, houses, and ammo.
They ARE MONEY!
Right Snow?
Food, water, meds, ammo, small manufactured goods, etc.
Gold and silver are money since they have an unit of account which are the weigh and the purity, a medium of exchange which are easy to transport and store and finally they preserve wealth which means that they will have values even after the dollar collapse and their values are stable.
So, the currencies that I’ll be in are gold and silver after the US dollar collapse!
this letter also reflects my exact concerns & question . the criminals will destroy the elderly, but, then, that’s what they want. someone speak to the destruction of our own parents & grandparents & the inheritances we younger people should have received, now destroyed by the U.S. GOV’T & private FEDERAL RESERVE BANK.
The criminals will destroy not only the elderly, but also the entire middle class except for those who protected their life’s savings with physical gold and silver. Their goal is “A New Dark Ages” with the criminals as the feudal lords and the rest of the people serfs. We must prevent history from repeating. We are going to have to rebuild our civilization after the criminals destroy it. It’s going to be a hell of a fight. We cannot lose this thing.
Some of the elderly who live on their own still are pretty well armed out here in the boonies. And out here communities still pull together and help each other.
The saddest part is that even if the criminals destroyed the middle and the poor class, most of them are still unaware. Their goal is to install a “New World Order” so that they control everyone. I think that during that time, it will be almost impossible to buy PMs because the elite want their serfs to use their new corrupt fiat currency after the US dollar collapse and it’ll be much worst than the Dark Ages because there will be new technologies to torture us. These criminals also destroyed the Hunt Brothers who wanted to protect their wealth against inflation with silver! I wonder if the Hunt Brothers still buy silver to protect themselves against inflation.
When graphing all the Hijinx I refer folks to this Primer. How money goes off shore so we don’t inflate. The Money supply is huge but I don’t have any of it. Do You? This is why:
“It is critical to understand that hyperinflation is NOT inflation on steroids, it is a CURRENCY EVENT- a sudden and rapid complete loss of confidence in the currency.”
Well, the EFFECT of hyper inflation is certainly like inflation on steroids.
As to the cause being a rapid and complete loss of confidence in the currency… how far from this can we be now? There is already a considerable loss of confidence in the US government. As an emblem of that government, our currency cannot be all that far behind.
Ed, i agree we are very close, and it seems to me we are on target for the totally contrived Mayan ‘end of the world’ on 21.12.12, which was also the date in the movie, Rollover, 1981, which depicts a dollar collapse on 19.12.12, with global unrest. Dollar collapse will look just like the end of the world to the vast majority of people who don’t understand it, and are not expecting it. I can tell you from personal experience that this date (21.12.12) is being programmed throughout the world as the end of the old age. And it just so happens that the dollar collapse is the most effective single mechanism to alter the lives of all people on earth.
Good points, Chief. I had not thought about the significance of those dates but you could be on to something there. Of course those who were planning a catastrophic event of some type would know the date it arrives! How well planned of them to have these days in our conscious memories so that when this happens, we all shrug and say “Of course!”. The rest of us can only guess at such things but this makes perfect sense… especially about the world-wide impact of the dollar collapsing. :-(
All this makes me think of the glee in the ME when all the terrorists there see the dollar collapse. They will be singing and dancing in the streets, shooting their AKs into the air. It will not be until later that they realize the real impact of such a disaster. Uncle Sugar won’t be able to send them any more aid money, for one thing. For another, Israel won’t have US backup, so will be on their own with their VERY nervous fingers on the nuke trigger. If they even think that Arab armies are moving against them, it will be “game on like Donkey Kong”!
I’ll stick with Peter’s formula because it is easier for me to understand and Sinclair’s formula is kinda complicated. I’ll also stick with this video below that explains how a global economic collapse is inevitable.