Will Weimar Hyperinflation Come to the U.S.? ~ The Risk Averse Alert

Sunday, November 18, 2012

Will Weimar Hyperinflation Come to the U.S.?

Although "inflate or die" thus far has passed muster in the New Era of overt, hyperinflationary bailout contrived by lenders of last resort to "rescue" the hopelessly insolvent trans-Atlantic banking system, truth is this policy response is but part and parcel of a covert hyperinflation ongoing since the early 1970s. In fact many elements making for decided echos of the German Weimar experience over the interim have been plainly evident, this notwithstanding a general unwillingness to look these in the face. However, physical circumstance finding at our monetary system's apex a global, U.S. Dollar System has effectively masked the many similar consequences we have been experiencing. As such we get a sense of John Maynard Keynes insight expressed in his short essay "Inflation" in 1919:

"There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

The U.S. dollar's role as global reserve currency certainly has provided a check against the runaway aspects of hyperinflation from becoming entrenched. Likewise has a monetarist mania employing many a sophistic illusion—this of the fascist "creative destruction" sort rationalizing a regime of asset-stripping—whose effect over recent decades has facilitated an explosion of marketable securities representing claims on a wealth that, by no means is up to the task of sustaining the values assigned to these securities. Per such contemporary distinctions making our experience in the post-Bretton Woods era different than that leading to Weimar Germany's hyperinflationary nightmare of the early 1920s, we can readily agree with Doug Noland's analysis, which this week likewise contemplates the matter.

Yet the very fact that, the ultimate worth of a myriad of marketable securities cannot possibly be sustained given collapsed capacity to generate productivity-enhancing wealth (wherein "something" of value is created virtually out of "nothing") presents today's common foundation with Weimar Germany. No matter differences in objects of financial, economic and social focus, then versus now, runaway non-productive debt growth represents our common bond. Yet our vulnerability today is on a scale never before seen.

So, could the truly insane facets of hyperinflation that wracked Weimar Germany in the early 1920s yet come to fruition? You bet they could! Much will depend on political developments once the global, U.S. dollar reserve system is threatened with complete breakdown over the period ahead. Should denial and fantasy continue rationalizing policy initiatives furthering hyperinflationary bailout of a hopelessly insolvent banking system stuffed to the gills with unpayable, unproductive debt, then the very worst of the Weimar experience surely will be ours to relive.

The drive to impose austerity at the core of the U.S. dollar system certainly bodes ill for efforts otherwise attempting to hyperinflate outstanding system debt, and paper over the mountain of it that, simply is unpayable. We are way beyond there being any noteworthy value to monetarist technical machinations venturing to reduce supply of the last of living securities still in demand—U.S. Treasury securities—in the hope interest rates can be held down until the day phantom confidence in the garbage a Wall Street-London imperial cabal has stuffed the trans-Atlantic banking system with returns. Indeed, the very call for austerity is unmistakable admission some significant portion of existing liabilities are gravely threatened with default. We might readily conclude, then, insistence that austerity be imposed at the very core of the U.S. dollar system could herald that system's demise in chaotic unwind of some significant component of today's mountain of unpayable debt. The political response to this risk, once it is more widely recognized, will be key to assessing the likely path forward. So far, willingness to play along with the "fiscal cliff" circus sideshow sadly reveals a political class evidently clueless about what's at stake. No one stops to wonder whether the United States is being isolated, that collapse of the dollar reserve system becomes a fait accompli in a fit of debt repudiation whose probability of occurring in chaotic crisis only has been increasing over recent years.

Should resistance to austerity Team Fraud demands materialize over weeks ahead, keep an eye out for euro-zone-like blackmail exerted on a U.S. Treasury market whose size positively dwarfs any combination of global central banks. These simply cannot prop up the U.S. Treasury forever. Today's Treasury liabilities have a global reach and are not principally held domestically, so blackmail is even more easily applied. Knowing, too, where in 1931 such in kind, devastating pressure was exerted to the effect of collapsing the trans-Atlantic banking system back then, likely suspects thus already can be identified. Indeed, look what London has done to this point to heighten the United States' vulnerability. Going back to London's 1986 "Big Bang" any student of American history can trace an imperial operation targeting the United States for economic and financial destruction.

Per pending crisis of the U.S. dollar system, the goal appears isolation of the United States and, more critically, initiating the process of its political destruction, this by triggering its institutional capacity to deliver a devastating hyperinflationary response. Should institutions of government prove as feckless as those of a stillborn Weimar Republic saddled with a burdensome, unproductive debt incurred prosecuting a Great War whose manufactured initiation (again, by London), violent impact and loss cultivated resentment making impossible any debt repudiation—such a vengeance-driven social consciousness does not today prevent equitable reorganization of dollar denominated debt, however—then subsequent to collapse of today's dollar reserve system, or in tandem with it, a Weimar-like hyperinflation undoubtedly could take hold.

A read I came across of Germany's Thomas Mann commenting on Weimar hyperinflation presents worthy contemplation here:

"A straight line runs from the madness of the German inflation to the madness of the Third Reich. ...The market woman who demanded in a dry tone 'one hundred billion' mark for a single egg, had lost during inflation her ability to be amazed at anything anymore. Since that time nothing was so mad or so atrocious that it could have caused any awe in people anymore. ...
"They learned to look on life as a wild adventure, the outcome of which depended not on their own effort but on sinister, mysterious forces. The millions who were then robbed of their wages and savings become the masses with whom Dr. Goebbels was to operate. ...Having been robbed, the Germans became a nation of robbers."
—Thomas Mann, Princeton University, August 1942

Isolation, then political destruction is a far more likely outcome for the United States than the good garbage everyone else chirps about rationalizing intentions behind policies put in place following the collapse of Adam Smith's Leveraged Ponzi Scheme in 2007-2008. Simultaneously bankrupting and blackmailing the U.S. Treasury, then, evidently is the already well-worn means an ages old imperial enemy has deployed to destroy the constitutional republic that is the United States. Not that this objective's accomplishment is set in stone by any means. In fact, there's plenty of time to avoid this lurid outcome. Yet the ultimate setup making reachable the United States' tragic end already is well in place. Collapsing the U.S. dollar reserve system more than likely represents the gateway by which all hell is to break loose. The "fiscal cliff" fraud is but a means to choking a capital-starved banking system while at the same time further institutionalizing the politics of fascism, the likes of which then would stand ready in the wings once a Weimar-like hyperinflationary blowout runs its course in the United States over the months and years following the U.S. dollar system's demise.

So, any upcoming collapse sinking major U.S. stock indexes to levels last seen in the 1987-1994 period could be precipitated by the effective destruction of the U.S. dollar system. This probably will occur by way of the euro's collapse on account of an inescapable necessity for debt reorganization. It should come as no surprise that, the International Monetary Fund—a long-established institution housing old school, dyed in the wool fascists—today is leading the charge for Greek debt reorganization. One step back, two steps forward is the game this imperial tool is playing.

One final note of a fundamental nature worth concluding with is the matter of a Financial Transaction Sales Tax: a policy prescription recently advocated here. In and of itself this represents no real solution to avoiding the so-called "fiscal cliff." Nor is it an adequate proxy substituting for reinstatement of Glass-Steagall and consequent reorganization of insolvent credits today choking the trans-Atlantic banking system. Rather its pursuit is for the sole sake of making a loud political statement: NO TO FASCISM IN THE UNITED STATES! Taxing every financial transaction facilitated at the front line where support for fascism does its "banking" would be a most effective means for organizing support among an absolute majority of Americans who instinctively recognize the Republic's enemy, this no matter the citizenry's collective intellectual incapacity to fathom its enemy's fascist ways.

Now, on Friday I also promised a technical framework for fearing why a market collapse sinking major U.S. stock indexes back to levels last seen in the 1987-1994 period (at least!) could fully materialize in 2013. It's very simple and employs ideas involving "time" put forward in the Elliott Wave Principle. As I have briefly indicated before, time really plays no part in the development of component waves in an Elliott wave sequence. This matter specifically came up assessing the market's advance off March '09 bottom. In proposing that, five waves up unfolded into February 2011 peak (a possibility I am not presently siding with, per Friday's second alternate wave count), the contrast of time spent forming the 2nd wave versus the 4th was raised, and the conclusion surrounding the considerably longer duration spent forming the 4th wave deferred to this matter of "time" being a non-factor according to the Elliott Wave Principle.

Yet time considerations do in fact still have place in the Elliott Wave Principle, and although I made no mention of this back in '08, it was one of the reasons why I began the "Risk Averse Alert" in March of that year. Its working simply employs Fibonacci numbers over durations marking a top to a top, a top to a bottom, a bottom to a top, or a bottom to a bottom. For example, 2008 marked 34 years from the market's 1974 bottom. The year 2008 also was 21 years from 1987, which year saw both a major top and a major bottom put in place. Finally, 2008 was 8 years from the market's Y2k top. So, by this example you should see how "time" is accounted for in the Elliott Wave Principle. This is the extent of its utility, using Fibonacci numbers as a measuring stick so to speak.

Here's the Fibonacci sequence: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144... Each Fibonacci number is the sum of the preceding two Fibonacci numbers. How this came to be and how relationships in the sequence find countless natural expressions via the "Golden Ratio" I will leave to your love of Renaissance art and architecture, as well as the natural sciences, to at last discover and marvel about.

As for 2013, well that's 5 years from 2008 and 13 years from Y2k. So, then, we have some "technical" basis for anticipating something significant next year. Will it be a top? A bottom? How about both? Only time will tell.

Finally, I have consistently distinguished my long-term outlook from that put forward by Robert Prechter at Elliott Wave International by supposing the start of five waves up in the modern era of the United States might be traced back to the middle of the 19th century around the time of the outbreak of the American Civil War. In this framework 1932 marked bottom to the 2nd wave of five waves up. From 1932 to Y2k was the 3rd wave higher. The 5th wave of the 3rd wave formed following Nixon's abandonment of the Bretton Woods System of fixed exchange rates on August 15, 1971 and was marked by a covert hyperinflation, like I said at the start. My projection forecasting major U.S. stock indexes to fall to levels last seen in the 1987-1994 period corresponds with formation of the 4th wave of five waves up from the mid-19th century. So, the question I will conclude with here is whether the 5th wave up will be marked by a period of overt hyperinflation a la Weimar Germany?

Turning to the book to which I linked at the start, we find Chapter VII is titled, "The Course of Prices of Industrial Shares during the Paper Inflation." Here we find year-by-year details that might prove instructive. I would just note that, when the Weimar Republic's hyperinflation reached its climax in 1923, although share prices were rising, they were badly lagging other "things." In other words, equities were not maintaining their purchasing power. So, even if a 5th wave up completing five waves from the mid-19th century were to coincide with a Weimar redux in the U.S., at some point in its formation share gains probably will pale in comparison to increases in the cost of living.

Oh, and by the way... the year 2021 is 89 years from 1932, 21 years from Y2k, and 8 years from (drum roll) 2013. Might 2021 in the United States parallel Weimar Germany's 1923?

Highly recommended by Doug Noland

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