It is impossible to cover all the debts at once...Currently if all the cash in existence was dumped on the amount owing it would not even be enough to pay the interest...There is not going to be an end to fiat in our lifetimes...System implosion yes - end of fiat no.
Other then a brief period at the start of US History it's been a fractionally reserve system...fiat only shows up once the Gold and silver supply shrinks too far in relation to the debt supply...as the debt inflates the demands on the fractional reserve increase until it becomes impossible to use Gold and silver as a monetary base...Then fiat is introduced.
In a debt backed by debt system the money supply is debt...It is the debt that is going to hyperdeflate.
Who hyperinflates? Well those who owe also need to have an ability to print for a hyperinflation to work...Unless they allow consumers to inkjet money to pay their debts consumers have no ability to print...
This is what the hyperinflationists believe...
You the bottom owe the top...but you can't pay, but not to worry the top has a printing press and they will print up what you owe them and give it to you and then you give it to them...
And what is this insistent gawking at government debt?
Consumer debt makes up 80% of the debt supply...Consumers using previously created debt and debt inflated assets as collateral requesting new debt creation from commercial banks...Consumers are the primary source and interest attached to the medium of exchange is the primary cause of debt inflation.
Most of the US government debt is just recycled previously created debt rolled over...the actual new debt creation is very small and unlike the general consumer all that is owed is the interest...If the Government wanted inflation they would begin hiring more Americans instead of outsourcing or giving government employees significant raises or increasing benefit payouts...
All the inflation you see is consumer generated...A massive volume of consumer drones signing on the dotted line is all. And like I said before The FED usually follows what the market dictates rates should be...
If the fed needs to strengthen debt inflation then they lower rates well below what the market dictates and when they want to weaken debt inflation they raise rates above what the market dictates...
But it still boils down to volume...You need people signing on the dotted line in massive numbers to sustain a perpetually positive bid...
Consumers have a finite ability to request debt...
Since the FED has been in operation from 1913 to present it has not given away anything...It is a lender of last resort not a non profit charitable organization...
But you people seem to think that at some point it is going to turn into a non profit charitable organization and start giving away free money...
What you are saying is the FED combined with the US government is going to give away free food, clothing, energy, cars, houses, "free everything" when you clowns are no longer able to purchase those things...
Basically not only do none of you want to work for a living, none of you know how to (You think chasing after yield is productive behaviour) and you think the Fed and US government is just going to give everything away for free forever...That is the stance of the Hyperinflationists...
I believe the opposite is going to happen. The depleted units of human capital will be liquidated while you clowns believe they will be rewarded...
What you people are saying is that when an employee does not work and is no longer needed the Employer will be forced for some reason to just keep paying them more and more...
That is exactly what you Inflation forever clowns think...too bad outsourcing, layoffs and the recycling of labor into lower pay scales is taking place...
If the authorities were to start an effective hyperinflation the Dollar in relation to everything else would collapse rapidly...More and more people would not want them...As long as production is slashed as fast as or faster than demand it will retain its status...
A depression is not bad if you have a source of income...Unless the price of goods drops to zero, zero income does not buy very much...
When a hyperdeflation of the debt supply happens the circulating medium of exchange which is debt in a debt backed by debt system stops circulating rapidly which leads to a rapid contraction in the division of labor...This process runs to maximum potential...Either the authorities declare an emergency and try to regain control like 1933 or the implosion will continue until a complete breakdown of civilization happens...
You either need massive demand or short supply to maintain a bid...
The US was entering into a classic hyperinflationary mode from the middle 60's to the early 80's. The policy to stop it was called the controlled destruction of the economy policy in 1979...Because once it passes the double digit into the triple digit phase it becomes hyper and the effects of stopping at that point are lethal.
Now there are people who think the market sets rates and the FED just follows along...For the most part this is true...But beginning in 1978 the FED cranked the FED rate and kept cranking until the economy began to not only collapse but show visible signs...by the time 82 had rolled around the Economy was collapsing at a rapid rate...It collapsed enough that it was impossible for rates to continue rising...Rates have been dropping ever since while manufacturing has been exported out of the US at an increased rate...
Basically debt inflation has been exported out of the US to prevent the system from hyperinflating...
Some people would call it a liquidity trap...which is followed by a credit crunch or what I call a hyperdeflationary implosion of the debt supply.
Japan was the primary importer and as far as I can tell Japan sure inflated good from the early 80's until the early 90's...Then the next importer became Canada and Mexico with free trade and finally China is now slurping it up...
Japan has been turned into a deflationary sink for excess debt inflation since it collapsed...Most of the excess US debt inflation that is imported to Japan ends up in Japanese markets which are sold off to support Wall Street. That is the primary reason why Japanese markets have gone nowhere for so long...
And not to let the US Government off the hook massive borrowing during the 80's also helped keep the system inflating by the required amount which is not too much and not too little...
And no one knows how much is too much or too little until the effects start showing up...
But a funny thing starts happening when very low rates show up...You run out of volume...It happened in Japan, rates crashed in search of volume but since they can't drop too low and below zero is impossible as far as sustaining an economic system there was no more volume...The system in Japan ran out of consumers because they were maxed out...
Imagine refinancing your house in Japan for 1,000,000 at 2.5% for 100 years but if you sold it you could only get $250,000...Japan is completely insolvent and has been for a decade...
Now people would say...well The US could go the same route...Unfortunately Japan is sustained on life support from the US export to Japan of debt inflation...without that Japan would cave in rapidly...
Japan shares a symbiotic relationship with the US. Combined they produce over 50% of the debt inflation that keeps the planet Liquified...
Germany is also highly dependant upon US exported Debt inflation and it is the number 3 economy in the world...
Hint...WW2...USA defeated Japan and Germany...I wonder who set up their Central Banks? If your guess is Buddhist monks then try again.
Anyway you slice it and dice it there is no way that the rest of the world could support the US once it caves in since it is the US supporting the entire world...or sucking from the bottom to support the top...the UK gets a cut since the mother Bank in the Global network is located in London and I suppose if you factor in all the loans Israel gets which never have to be paid back it does also...
A strong case can be made that the Mother bank is in Switzerland since it was Neutral during WW2 but conducted banking for all sides. You could say that European interests are the Brains and the US is the Brawn.
All I know is the system has a maximum potential and when reached the system implodes...and we are close...
The compound interest system always fails...Proper management? What is that? It is being managed just fine...a compound interest system inflates to its maximum potential then implodes...That's all it can do...It is you clowns who think it is not being managed properly...Or that it is capable of doing something it is not designed to do...
This is what the compound interest system does...To me it looks like it's working better then it ever has in all of recorded history...
How do you think it is being mismanaged? Everyone at the top is partying...everyone in the middle and lower (The Bottom) is crying like babies...It is working like it has worked for 1000's of years...
Power, you either have it or you don't...If you have it you have to maintain and expand it and if you don't you have to obtain it...
The system implodes because it is systemically flawed...Interest attached to the medium of exchange...
A medium of exchange belongs to everyone...when you attach interest to it you are claiming ownership of it and renting it out...It is only a matter of time until it is sucked out of the hands of the many into the hands of the few...
Only liars and fools say or think otherwise...
The system implodes and it always will implode...Like it's been doing for 1000's of years...
You clowns should just march and chant "Make us rich, make us rich, we the people demand you make us rich..."
It's a comedy.
There are no magic spells...Maximum potential is maximum potential. The FED as lender of last resort has an infinite ability to lend...Unfortunately consumers have a finite ability to request (borrow)...sorry to burst your bubble.
To get rich you must take more then you give...fine if only a few people do it but once everyone in society does that the system rapidly inflates to its maximum potential and then implodes....
The largest debt inflationary engine on the planet currently is the US real estate industry/market...Jigs up.
Last year the US made up 90% of world GDP growth. The rest of the world is in various states of collapse in the top sucking from the bottom system...
Once the bottom is sucked dry the top cannibalizes itself which has accelerated drastically the last 20 years.
I've left out the IMF, Bretton Woods, the invention of the magnetic strip along with the ATM and the introduction of the Micro processor powered New economy in 1971-72 and a whole pile of other stuff...
It is how the compound interest system has worked for all of recorded history.
Inflation has a finite limit...
The basic operating system now is no different then at any other time in history...
More technologically advanced but that's it. Top sucks from the bottom until it is sucked dry then it collapses. Over and over again just like it has been doing for 1000's of years.
"You" inflate the debt supply whenever you request a commercial bank to create debt out of thin air...
Consumers request (Beg) and the bankers give you what you want...The Bankers are giving you what you want and now you are telling me you don't want them to do that?
"You" along with billions of other consumers...Beg the bankers to make your dreams come true and they are only giving you what you want when they agree with your request...end of story.
And why you think the Bankers need to keep you on life support once you become worthless to them is beyond me...
If you were an employer would you keep someone around that either did no work or was not needed anymore?
Forget sheep more like drones. Consumer drones.
All you are interested in is striking it rich...end of story...My little bedtime stories cause your simplistic day dreams to blow up in your faces...
All you want to do is believe in fairy tales of the magical printing press...
When every idiot and their dog says "holy crap everything is caving in we're screwed...everything we believed in was a lie...we're doomed."
Interest rates rising by a billion basis points a nanosecond is no big deal...
The drone belief system...the Just think positive inflation forever religion.
You like interest don't you? Well Interest attached to the medium of exchange is the cause of fractional reserve banking not an effect of it...Now you can live off interest but once the entire population thinks they can it's game over...
You can fractionally reserve gold until the debt created in relation to the gold supply makes the fractionally reserved commodity disappear...Then you can not meet your requirements...That's what happened in 1971...the US ran out of Gold to back its consumer generated debt.
Labor is the same...While the top which does nothing expands the bottom in relation contracts until there is no one left to do the work anymore...
Productivity from the bottom which the top lives off must continually inflate or the wages must continually drop to allow the top to expand...
That's what outsourcing and free trade is all about...and why 100,000 People are allowed to cross the southern U.S. border every month...
The Romans did not waste time they just invaded and sent the excess male population to slave labor mining operations and the bulk of the Woman and children to Rome as slaves and servants or just hacked them up for fun...
Most of you here have an economic understanding which falls somewhere between the board game Monopoly and the Video Game Sim City...The average University produced Economist is above that level and they are Idiots...
The only reason you are crying about the master is because you are not the master...period
I've studied the plan that the top is implementing and the more I interact with the sheep and the drones at the bottom the more I think that their plan is good. What else are they going to do? Commit suicide so you can all move up a couple of levels in the economic food chain?
At some point I'll just stand back and watch what you are all begging, no, screaming at the top of your lungs for the top to give you...
Economic Doomsday...
I deal with truth you do not...Then you either say what is the truth? Or you claim that only GOD knows the truth...
If you don't know what the truth is then how do you know what lies are?
Answer: You don't give a rats ass...
I have a wheel barrel full of Gold and silver and advocate a return to a gold and silver standard but want a hyperinflation first so I can strike it rich...Really? I'm shocked...
You think the TOP is going to give you what you want? And you say you are living in reality and I'm living in Fantasy.
You better drop to your knees so quick that they shatter and pray I'm wrong...
Don't bother...Don't hurt yourself for no reason...I'm right and it is just a waiting game...everyone one says I'm right in the end...
In 1997-98 when I said Y2K would cause the collapse of the New economy moronism I was gang raped by the morons just as badly...Month after month of trying to explain to idiots how the system worked and I know far more now then I did back then.
You are all in for a mind numbing surprise. When 2000 rolled around I just laughed when the Nasdaq caved in and all the former get rich quick idiots in denial began crying for their mommies.
The worst is yet to come...
If the owners of the Fed decide to buy something they can but they already own the entire world so I don't know why they would monetize anything...Just release the death squads and liquidate the depleted units of human capital...
I don't see why they would want to start a hyperinflation since they know it will only last a few months and end in a hyperdeflationary implosion anyway...
I could see a limited hyperinflation to buy enough time to put the finishing touches on the final solution plan before it is executed.
It's just a waiting game to see what the manufactured scapegoat to cover the implosion will be for you to lap up.
Fractional reserve banking in its present form has been an institution for 600+ years...Yes, even when gold was money...
The current global system is 315 years old and is in the terminal phase...
You better prepare to be seriously let down...Because you will be when everything caves in...
"I could see a limited hyperinflation to buy enough time to put the finishing touches on the final solution plan before it is executed".
ReplyDeleteYes maybe theyre tring to hold until the Nov 2008 period.
Hypertiger, when the compounding interest stops growing, what do you think will happen to the avaibility of food in the cities?
Can you imagine millions of people migrating in direction of smaller cities with some agricultural fields? Crazy/scary would it be...
How will we pay our property taxes etc... ?
Many questions in my mind... and yes, a source of "income" during the collapse would remediate a lot of things. I need to work on that asap but Im sure you already did!
Good.
You might find this article by Michael Hudson enlightening
ReplyDeleteThe Mathematical Economics of Compound Rates of Interest: A Four-Thousand Year Overview
Part-I
Part-II
Thank you rajiv, good link!
ReplyDeleteI am glad I found Hypertiger again,
read lots of interesting posts on goldismoney a long time ago.
I would recommend a site that is talking deflation in the stock market trading world:
http://www.tickerforum.org/
I think Hypertiger would "fit in"
perfectly.
I hope there is room for a simple clearification. The word "fiat" is used a lot. I know it is a letter combination for something but I can't see why.
ReplyDeleteDo you bother to describe the "fiat" word in two sentences?
In general an interesting blog. The US shows every classical signs of an empire on its way down. Nothing lasts forever.
Not that this is an exact science in anyway. It is to many uncertain factors to take into considerations, but I do love americans and I hope they will manage to ride the storm off no matter what shows up at the end of the day.
"You could say that European interests are the Brains and the US is the Brawn".
ReplyDeleteI think he said that the USA is a colony not an empire.
The post is actually an old post from years ago that has been reposted here.
ReplyDeleteFiat is..."An arbitrary order or decree"
Basically the top says "This is money"
And you better agree or else.
Gold and silver coinage are fiat money...
The 1792 Coinage act "decreed" the US Dollar to be...
"Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver."
Then in 1900 the US Dollar was "decreed" to be...
"Be it enacted . ., That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard, and it shall be the duty of the Secretary of the Treasury to maintain such parity."
And more recently...in 1997
"The United States $1 Coin Act of 1997 was legislation passed by the United States Congress providing for a redesigned gold colored coin with a distinctive new rim. A major purpose of the Act was to allow for the replacement of the Susan B. Anthony dollar. The stockpiles of that coin had been depleted to the point that minting new coins would soon be required. The Sacagawea dollar was introduced as a result of the Act."
The current "decreed" U.S. Dollar is...
"The Sacagawea Dollar is the current United States dollar coin. This coin was first minted in 2000 and depicts the Native American woman Sacagawea. The obverse was designed by Glenna Goodacre and the reverse by Thomas D. Rogers."
"Obverse design: Sacagawea with her baby
Reverse design: A bald eagle in flight surrounded by 17 stars (for the number of states in the Union in 1804 at the time of the Lewis and Clark Expedition)."
88.5% copper
6.0% zinc
3.5% manganese
2% nickel
The U.S. Dollar or Unit was decreed (Fiat) in 1792 to be "Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver."
The U.S. Dollar was decreed (Fiat) in 1900 "the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine"
The U.S. Dollar wes decreed (Fiat) in 1997 88.5%, copper 6.0%, zinc 3.5%, manganese, 2% nickel.
Basically all money is "FIAT"
"The post is actually an old post from years ago that has been reposted here."
ReplyDeleteI believe I 'lifted' it in 2004!
I'm glad I found this blog.
ReplyDeleteHypertiger is one of the very few writers I have read who actually understands what the word fiat means.
As he noted, it is simply the power to say "do as I say, or else..." or "this is how it is, and you will go along, or else..." That is fiat. That is it. There is nothing more to it.
The best illustration of fiat I know of is an amusing one. It is given in the Woody Allen movie Bananas. By way of Woody pining over a young woman and a whole event-series of banal nonsense (very funny if you like this style of humor), Woody Allen ends up the dictator of a tiny banana republic. He goes insane with his new-found power, and his decrees are informed with the typical Woody Allen neuroses. The funniest decree is in order to ensure all citizens wear clean underwear, everybody must change their underwear at least 4 times a day. Further, to assist the police in enforcing this first decree, and to spare all involved any embarassment, all citizens must wear their underwear outside of their pants, so the police can check for cleanliness with greater ease.
That's pure fiat right there! The power to make such decrees and actually (near) fully enforce them. As absurd as this example may be, it's actually its absuridity that makes it such a clear, sharply-defined -- and perfect -- example of what fiat is, fiat displayed in its pure essence.
Thus, fiat has absolutely nothing to do with gold versus not gold (or any other commodity), and the concept does not come from any branch of economics or finance at all. It is a purely political word and concept.
Cheryl gave me this site and I would have to say that I have read very little that was described as I would describe it. I have been attempting to describe the situation very much like this on Prudent Bear for a good 7 years, though I don't believe I was this close when I started. My theories have evolved to almost identical as I have had a lot of time to take what I already knew and put it together with what I could decide was true.
ReplyDeleteThe great delusion that I keep hearing is the Fed is going to save us by blowing itself up with bad collateral. The other is the misunderstanding of how the whole banking game works, that the entire system is debt, not just debt, but debt as legal tender for all debts public and private. It fails to register that one might find a warm place to live and sleep more desirable than a pocket full of gold. Today the rage is inflation and commodities. But, what is actually going on as I have been able to deduce is the banking system had to eat its last securitization and the money was left out in the system rather than re-absorbed in a sale. The main reason isn't that the debt was bad as it was that debt like it was beginning to have severe performance problems. Hyper hits it right on the head when he says that we have had every drop sucked from the bottom, that the American game has become getting rich and living rich and thus the demand has been that it all be outsourced. I have never seen it described like this, but it definitely makes sense, as the same think happened in France in 1720.
The one thing I am confused about is what to do with bank deposits? I do know one thing, that all the money to do anything is either in currency or bank deposits and in reality, only the deposits can insure the deposits in the end. There is a strange sense about the math to this in that all there is w will be all there is, so if deposits were only put out in a pro-rata share, the remaining money would still have the same value, as hyper said, the value of an extra zero is zero. something will need to be done to make the surviving debits equal the surviving credits.
In any case, the question of how long this goes on is a tough one. It was supposed that 1932 or 1933 would have been the end of the mess whether Roosevelt had done anything or not. Hyper says that gold was dropped because that was the end of the line for gold. I can buy that. The ongoing delusion is that there wasn't any inflation when we had gold, which according to statistics i got from Robert Shillers site about the SPX and the CPI, there was heavy inflation between 1895 and 1925. I am quite sure that the Fed was created because they needed something to multiply the gold then. Of course Breton Woods allowed the US to inflate dollars to a world that was out of money at the time under the guise of international gold exchange. The 1990's allowed the US to inflate dollars to a deflating world to the point that the inflation has reached its maximum. It is hard for the typical guy to understand there is the dollar then there is the dollar disguised as the Euro and all the other currencies in the world, the only difference being the interest rate game and the imbalance of supplies between countries. Somehow these idiots think the dollar is going to implode and leave the currencies that ride on its back intact.
In any case, I am going to come back and read until I get tired of reading what looks to be so much like my own ideas. One thing we have going for us in this case is people that understand the game in this sense are in a small minority. Not many people understand anything about how to position themselves in event of a deflation because they don't know what causes it.