Cryptocurrency: Four Phases Of Hyperinflation via IMF Fiat GovBank CBDC... Got Crypto? Got Gold?
The Four Phases Of Hyperinflation, According To The IMF https://bombthrower.com/the-four-stages-of-hyperinflation-according-to-the-i... https://www.imf.org/-/media/Files/Publications/WP/2018/wp18266.ashx https://twitter.com/LynAldenContact/status/1629548147675484160 https://twitter.com/jameslavish/status/1627769987653062657 https://www.zerohedge.com/markets/fed-just-hinted-new-inflation-target-will-... https://www.wsj.com/livecoverage/cpi-report-today-january-2023-inflation/car... https://www.bloomberg.com/opinion/articles/2022-03-13/inflation-stings-most-... https://twitter.com/ricwe123/status/1627232577110024194 https://www.bloomberg.com/news/articles/2023-03-10/summers-sees-no-systemic-... https://bombthrower.com/meet-the-most-likely-base-layer-for-global-cbdcs-eth... https://stacksatsnow.com/ Inflation is much more than a monetary phenomenon; it rips at the very core of social cohesion. Secular high inflation is one of the worst possible experiences a population can face. We are now heading for what looks like global high inflation across all currencies, with multiple episodes of hyperinflation. It will be unprecedented. The Four Phases of Hyperinflation Hyperinflations are generally defined as periods in which the monthly inflation rate exceeds 50%. In this 2018 paper, the IMF breaks hyperinflationary episodes out into four phases which comprise two stages: Phase One: is “the rise”. The IMF also calls this “the extraordinary acceleration phase” which is the lead-up to the hyperinflation. IMF actually terms it “the path toward hyperinflation”, but given that they define that as an annual inflation rate of greater than 50% but under 500%, an uncredentialed, non-economist observer might describe that as already being hyperinflation. “The average duration of the first phase is 8-9 years with an annual average inflation of 125 percent” Phase Two: is the actual hyperinflation proper. Wheelbarrows of money, burning banknotes in the oven (or more tragically, sticking your head in there). In one well storied example from Weimar Germany, an emigre fighting to retrieve his savings from a German bank was finally paid out – via a cheque mailed to him in America. The stamp on the envelope cost more than the value on the cheque made out to him. Over the eighteen 20th century hyperinflations covered in the IMF paper, the average inflation rate here, according to the IMF study was 2,912% and the median duration was four years – this “explosive” phase is usually over in about two years. Venezuela, isn’t in the graph because their hyperinflation took place in the 2000’s. It is noted therein, that the inflation rate there hit 488,865%. As we’ve covered in the premium letter, Venezuela has undergone three currency devaluations over the 14 years, knocking about half a dozen zeros off their banknotes each time (via the July 2021 issue of TCC): Venezuela is launching their Digital Bolivar CBDC in tandem with a currency redenomination that took effect Oct 1st. They knocked six zeros off of their banknotes in an effort to get in front of the hyperinflation which has ravaged the economy for years. This is the third currency redenomination for Venezuela in 13 years. In 2018 they knocked five zeros off the currency and in 2008 they took away three zeroes. Maybe this is another indicator of hyperinflation? When the time between redenominations shrinks while the number of zeroes removed increases…. (The prior two devaluations also coincided with the launching of a Central Bank Digital Currency). Phases Three and Four are the second stage of a hyper inflationary event: “disinflation” – where the annual inflation rate plummets to somewhere between 50% and 500% and lasts another six years on average – and finally the “stabilization” phase, where inflation remains under 50% per year for at least three years. The case for a “Phase Zero” of Hyperinflation: I would argue that there is a Phase Zero: where the future inflationary path becomes baked in by unsustainable debt. While policy makers are still able to talk with a straight face as if there is an alternative, the path to inflation is assured. We’ve been in Phase Zero for over 50 years, since the Nixon shock of 1971. We are at the edges of the Phase Zero to One transition now. Back in the 1940s during WWII, public debt to GDP quickly jumped from 40% to over 100%. But, this actually understates the scale of what happened. Debt went from $43 billion to $258 billion, which was a 500% increase in five years. pic.twitter.com/6rA4bglkBp — Lyn Alden (@LynAldenContact) February 25, 2023 Phase zero could probably be defined as the moment a currency becomes fiat. We notice from Lyn Alden’s chart, of US debt-to-GDP above, that after the World War II spending binge, the ratio actually declined. Over the Leave-It-To-Beaver and Hippies era, it came down to below the level it was before the war. Then came the Nixon Shock in the early 70’s, when the last vestiges of gold convertibility were suspended (“temporarily”). Since then, the global monetary system has been irrevocably committed to an inflationary path. In this James Lavish Twitter thread, various participants look at how the interest due on America’s debt has entered the territory where it is cannibalizing the budget expenditures. When you have to borrow more, at higher interest rates, this is what happens. It’s really simple. And scary. pic.twitter.com/zA3eyVfBdq — James Lavish (@jameslavish) February 20, 2023 Seen in this light, it’s no surprise that central banks around the world are already backing off the interest rate hikes (Canada has already said they’re on hold, and the only thing the US is meaningfully tapering is the size of the rate hikes). [ Insert: In previous editions of the letter it was always reiterated that the Fed will continue hiking “until something breaks” in the credit markets / banking system. Given the startling and rapid collapse of the Silicon Valley Bank over the past couple days, we may be getting there ] If the Fed slows down hikes, they have to normalize higher inflation. The folks over at Zerohedge once predicted that when it becomes clear that the Fed can’t control money supply, they would start dropping “leaks” that the hallowed “target inflation rate” would be raised. Right now that’s 2%, pretty well across all civilized nations. That’s the golden rate at which governments can embezzle wealth from the economy and the peasants will let them get away with it. But to get inflation down to that level, according to this Obama-era advisor, that would mean in excess of 6% unemployment for two years. The Fed wants “demand destruction” (which means people lose their jobs or their business) – but not too much demand destruction. Apparently 6% for 2 years is too much, so the level of embezzlement will have to be raised. It’s not like we’re talking hyper-inflationary numbers, yet – right? But raising a target inflation rate from 2% to 3% is a 50% hike in the rate of theft. Fear not, the corporate press is always there with a solution. In this case it’s the Wall Street Journal suggesting you could skip breakfast “Several breakfast staples saw sharp price increases due to a perfect storm of bad weather and disease outbreaks—and continued effects from Russia’s invasion of Ukraine.” This reminds me of the infamous Bloomberg piece on how to make ends meet on a measly $300,000 / year… advice included that you get rid of your car, switch from eating meat to lentils… and euthanizing your dog. This all jives with our core premise that the ESG movement is so widely endorsed by “woke” capitalists because it provides cover for the reality that we are in an unsustainable debt bubble and monetary expansion – and that the rabble has to ratchet down their living standards to cope. We can look at weaker economies to see what the future looks like: Lebanon just did a currency devaluation – reducing the official exchange rate by 90%, overnight. This came after a spat of bank robberies, where citizens were sticking up banks to get their own money out. Now they’re burning them down. In Lebanon people are burning down financial institutions and politicians' homes to reclaim their own money which has been frozen by the banks. Keep in mind with CBDC the financial establishment has the ability to freeze your money with a push on a button..... pic.twitter.com/kNIn8Z1Gbh — Richard (@ricwe123) February 19, 2023 On January 31st, Lebanese citizens went to bed thinking the official exchange rate on the Lebanese pound was around 1500 to 1 USD, (whether or not they could actually get at their money, that was the rate). When they awoke the next morning, the official exchange rate had been set to 15,000 Lebanese pounds to 1 USD. The black market rate was even worse, coming in around 64,000. In Bitcoin terms, the collapse was even more pronounced: The fiat system is collapsing, weaker currencies first – but anything not backed by something tangible is headed for the dumpster of history. In prior high inflation or hyperinflationary events, people could always seek refuge in other currencies or adopt some kind of “notgeld” (emergency money). But in this chapter, it’s every currency, across all political affiliations, and jeopardizing every incumbent power structure. (Which is why it seems like the world is sleepwalking into another world war, if we’re not already in the early innings of one.) It may seem like being on alert for hyperinflation here in the West is bonkers, but we’re already seeing massive fissures in the financial system opening up from normalizing interest rates to %4.57, well below even the official rate of inflation – and that hallowed “Fed Taper” still hasn’t even gotten going yet… It probably never will. Banking crises are here (we’ve had two in under a week, if you count the Elizabeth Warren-led rat-fucking of Silvergate), and former Treasury Secretary Larry Summers went on Bloomberg to say this “won’t be a source of systemic risk”. It remains to be seen if that utterance gets filed next to “sub-prime is contained”. If we squeak through this crisis, we buy some time but only forestall the inevitable destruction the global financial system, which explains the incessant drive toward CBDCs, but that could all be too late, given the rate of collapse. This morning I woke up to see USDC had de-pegged to as low as 0.82, and while it looks like it will probably re-peg in due course (I sent a note about that to my premium list earlier today), it reinforces my core tenet that volatility aside, the only thing I really trust to be around for the foreseeable future, (and that I can move in an instant during a financial collapse) …is Bitcoin.
What Comes After The Great Liquidation? Authored by MN Gordon via EconomicPrism.com, Expectations were great. When 2023 started, there was a general sense that the stock and bond markets had turned over a new leaf. A repeat of 2022 was out of the question. The primary assumption was that inflation would relent. After that, everything else would neatly fall in line. Specifically, interest rates would decline, and the next great stock market boom would bubble up just in time to bailout the meager retirement savings of aging baby boomers. That was the general outlook when 2023 commenced. But instead, the opposite is now happening. Inflation is persisting. Interest rates are rising. And stock and real estate prices are headed down, down, down. This week, for example, Fed Chair Jerome Powell, in his semi-annual Congressional testimony, clarified that interest rates would go “higher than previously anticipated.” He also noted that, if needed, he’s “prepared to increase the pace of rate hikes.” In other words, the much-anticipated Powell pivot has gone on indefinite hiatus. You can fight the Fed and buy stocks if you must. But you won’t likely be very happy with the results. Moreover, Fed rate hikes are only part of the story. To be clear, the Fed’s rate hikes are to the federal funds rate. However, they do, in fact, influence Treasury rates. Since March 2022, the Fed has hiked the federal funds rate from a target range of 0 to 0.25 percent to a range of 4.50 to 4.75 percent. As a result, and over this duration, the 2-year Treasury yield has jumped from 1.75 to over 5 percent. What to make of it… Radical Action Rising interest rates mean higher borrowing costs. And higher borrowing costs mean a greater percentage of income is needed to service the debt. This has various ramifications. For example, if more income is being used to service the debt there is less income available to use for savings, investments, or to buy other goods and services. With less money available to spend or to invest in capital markets, economic growth stagnates. This, in short, intensifies the problem. With less capital and savings available, and less spending taking place, there’s ultimately less economic activity. And when there’s less economic activity taking place there’s less cash flow available to service the debt. To then make up the difference, consumers must use greater amounts of consumer debt to attain the consumer spending needed to preserve their lifestyle. This, again, is a dead-end street. Applying additional amounts of debt is a short-term solution for a long-term problem. The debt, unfortunately, doesn’t magically disappear. It piles up until a point where radical action must be taken. Creditors get stiffed. Or debtors massively reduce spending to pay down the debts previously incurred. It is all very basic. A simple acceptance of reality, and the determination to take the necessary footwork, can result in great things. In this case, it can turn the pain involved with digging one’s way out of debt into the foundations for building wealth. A debtor that is successful at digging themselves out of a hole by massively reducing spending will then have the opportunity to build real wealth. Because once there is no debt left to pay off, the excess money can be saved and invested. Americans on the Hook Structuring your lifestyle and spending habits to be less than your income is fundamental to building real wealth. The best investment opportunity in the world could be right in front of your face. Yet if you don’t have the capital, you won’t have the ability to capitalize on it. We’re not sure why, but few people have the discipline to spend less than they make, and then save and invest the difference. This is why most people should be prepared to eat canned lima beans in retirement – the puke green ones the cafeteria served you in grammar school. Over the years, U.S. debtors – including consumers and the government – have spent their way into a massive debt hole. For several decades, these massive debts have been masked by low interest rates. The days of refinancing at ever lower rates are over. Interest rates are rising. But what if interest rates must increase much, much higher than Powell anticipates? The truth is, there are groundbreaking events that are well beyond Powell’s control. For example, Japan may be the world’s largest holder of U.S. Treasuries. But the appetite Japanese investors have for Treasuries may be souring. In this respect, the Wall Street Journal recently posited the following: “Last year, the Federal Reserve’s interest-rate increases weakened the yen and lifted the cost of hedging against currency fluctuations for Japanese investors buying U.S. assets. That drove many to unload U.S. bonds, in a shift from years of purchases that made Japan the world’s largest foreign holder of Treasurys. Now, investors are growing worried the selling will resume, especially with Treasury yields hurtling toward decade-plus highs. “Without that support, Americans could be on the hook for higher borrowing costs on everything from single-family mortgages to business loans.” Are you an American? Do you delight in the prospect of being on the hook for higher borrowing costs? What Comes After the Great Liquidation Fed rate hikes, to contain the inflation of its own making, are contributing to higher Treasury rates and higher borrowing costs. This will continue to push borrowing costs higher and higher until something breaks. What will that something be? And what will be the first something to break? Will inflation break first? That’s the soft-landing scenario that Powell is after. Or will the economy and big banks break first? In this scenario, there would be mass layoffs, business closures, and a giant wave of bankruptcies. There would also be the blow-up of several big investment banks or significant investment funds. Alas, we believe the soft-landing scenario is highly unlikely. The recklessness that was committed in the run-up to the coronavirus panic, which then went into complete overdrive when the whole world lost its mind, must be reconciled. There’s no easy way out of this one. Mass liquidation is coming. Still, when the dust settles consumer prices will remain higher than they were at the start of 2020. There’s no going back to the prices of January 2020 for the same reason there will never, ever be penny candy again. The dollar debauchery that took place has permanently disfigured prices. The central planners, eager to deliver something for nothing, caused an epic disaster. And they won’t stop. They’ll continue to act – and they’ll say they’re acting with courage. What then? More than likely, through money supply expansion and currency debasement, the central planners will continue down the inflationary path. Maybe it will continue at a subtle or moderate rate over many years or decades. Or they could trigger runaway inflation, where velocity spikes up and prices double and triple in just a few weeks. No doubt, we’ll all find out soon enough. In the meantime, pay down debts, save cash, buy gold, and stack silver. With a little luck, you’ll make it though with a slimmer waistline and a greater mistrust of the planners in charge.
Military Budget For 2024 To Close In On $1 Trillion Mark https://news.antiwar.com/2023/03/09/biden-asks-for-massive-886-billion-milit... Authored by Dave DeCamp via AntiWar.com, The White House is asking Congress for a whopping $886.4 billion military budget for the fiscal year 2024, with $842 billion of it going to the Pentagon. The rest would go toward other federal agencies’ military spending, including the Energy Department’s nuclear weapons program. The 2024 National Defense Authorization Act will likely be much higher than the White House request as Congress added tens of billions to the previous two military budgets. For 2023, President Biden requested $813 billion, but Congress added $45 billion, bringing the finalized NDAA to $858 billion. Image via CSIS Congress could easily bring the 2024 NDAA to over $900 billion, closing in on the $1 trillion mark. The NDAAs don’t include the funds authorized for the Ukraine war, which could add another $100 billion if the US keeps spending on the conflict at the same pace. In a statement on the request, Secretary of Defense Lloyd Austin said the funds were needed to confront China, which the Pentagon has identified as its top priority. "The President’s budget request provides the resources necessary to address the pacing challenge from the People’s Republic of China, address advanced and persistent threats, accelerate innovation and modernization, and ensure operational resiliency amidst our changing climate," Austin, a former Raytheon board member, said in a statement. According to Responsible Statecraft, more than half of the budget will likely go to defense contractors, with Lockheed Martin, General Dynamics, Boeing, Northrop Grumman, and Raytheon getting the biggest chunk. We may be looking at $1 trillion in defense spending for the first time ever—this is madness. NEW @WilliamHartung in @RStatecraft on Biden’s whopping $886B defense budget request https://t.co/Nu3FnXxFy8 pic.twitter.com/WpUaTirSno — Quincy Institute (@QuincyInst) March 9, 2023 The budget includes $170 billion for weapons procurement and $145 billion for the research and development of new arms. "We may be looking at $1 trillion in defense spending for the first time ever—this is madness," Responsible Statecraft writes.
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