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Posts Tagged ‘inflation’

There’s a good piece on Seeking Alpha today on the prospects for global commodity appreciation if and when the Chinese Yuan starts appreciation vs. the US dollar.

At the same time, there’s also a sentiment of unease about inflation given the amount of new currency created in the wake of the financial crisis but it puzzles some that this hasn’t kicked in yet. Also from Seeking Alpha:

Logic dictates that we should all be gearing up for inflation, now, but the data does not lie and I can pull the most aggressive data I want and it shows ultra low inflation rates, which is scary, frankly. With the massive printing and monetization of debt that we have seen over the past 2 years, we should see some inflationary pressure, somewhere, but nothing.

There’s already an obvious relation between the two ideas, but we might have to rely on Kedrosky to hammer the point. In order to keep the Yuan stable, China has been buying greater and greater amounts of US Dollars over the years.

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Ergo: the biggest reason why inflation hasn’t hit, is because all the new dollars are in China.

Ergo: if the Yuan appreciates, dollar drops, inflation hits, interest rates rise,

recession worsens??

Wait, I thought the Yuan thing was supposed to be a good thing?

“Sent from my BlackBerry® wireless handheld”

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Eerie timing right after our last post on Zimbabwe, this story appeared on the Telegraph yesterday about how gold has been climbing in recent months due to fears that the bailouts will result in the debasement of money and hyperinflation.

In dollar terms, gold is at a seven-month high of $964. This is below last spring’s peak of $1,030 but the circumstances today are radically different. The dollar itself has become a safe haven as the crisis goes from bad to worse – if only because it is the currency of a unified and powerful nation with institutions that have been tested over time. It is not yet clear how well the eurozone’s 16-strong bloc of disparate states will respond to extreme stress. The euro dived two cents to $1.26 against the dollar, threatening to break below a 24-year upward trend line.

Crucially, gold has decoupled from oil and base metals, finding once again its ancient role as a store of wealth in dangerous times.

Is this tick-up in gold price a reflection of reality, or just the fears and anticipation of people and investors? Then again, maybe the fears ARE the reality.

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In Zimbabwe, where money has been reduced to worthless paper due to hyperinflation, citizens are forced to panning for gold to pay for bread to stave off hunger.

Hyperinflation is an economic phenomenon, the root of which can be complex–but generally blamed on an increase in money supply, which consequently reduces the value of the money in stock. In Zimbabwe, as of 2008, the inflation rate is estimated at 516,000,000,000,000,000,000% (516 quintillion).

The sordid history of how great increases in money supply led to hyperinflation is chronicled in the wiki entry for Hyperinflation In Zimbabwe, which started with the government printing new currency to pay off international debts in 2006.

We previously featured Glenn Beck’s hockey stick presentation of potential US inflation. Are the US and European bailouts simply another Zimbabwe?

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Doing his impression of Al Gore’s Inconvenient Truth, journalist Glenn Beck illustrates the looming danger of hyperinflation due to the ongoing government bailouts:

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Watch this video if you would want to understand how the ‘gold standard’ was replaced by the U.S. dollar. U.S. dollars are not anymore backed by gold. The U.S. can theoretically print as much dollars it wants which will of course cause inflation by lowering the value of the dollar.

This video I got from youtube is biased towards returning the gold standard. See for yourself if you agree.

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Remember the guy who was right on the housing bubble? The guy who predicted this crisis as far as two years ago. Until recently he was basically correct on just about everything except two things. He claimed gold would rise and the dollar will crash. Both had not happened until now. 

Here he is again, really excited that his last two predictions may really come true. If this guy is right, the United States economy is in deep trouble to say the very least.

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Iceland is now in the grips of what can only be termed as “hyperinflation”. We talked about Iceland recently in light of the ongoing global financial crisis, and as it turns out the near-full-collapse of Iceland’s financial system is connected to the the turmoil in both the US and the UK. It can be considered a microcosm in fact, which we should all study.

Global Europe Anticipation Bulletin (GEAB) wrote recently:

Studying the case of Iceland can give an idea of the upcoming stages of the crisis. That is what our team has been doing ever since the beginning of 2006. This country indeed provides a good illustration of what the US and the UK should be expecting. It can be considered – and that is what most Icelandic people do today – that the collapse of Iceland’s financial system came from the fact that it was disproportionate to the size of the country’s economy.

The interesting point is how the situation in Iceland can be a good indicator of what lies ahead for the US and UK. GEAB lists the following key points:

  • The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets
  • Thanks to its recent « political baptism », the Euro becomes a credible « safe haven » value and therefore provides a « crisis » alternative to the US dollar
  • The US public debt is now swelling uncontrollably
  • The ongoing collapse of US real economy prevents from finding an alternative solution to the country’s defaulting
  • « Strong inflation or hyper-inflation in the US in 2009? », that is the only question.

Check out more of GEAB’s illuminating write-up here.

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Unlike goldilocks, it isn’t a question of too hot, too cold, and just right.

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