# Dave Stockman's prediction



## Tweto (Nov 26, 2011)

Dave Stockman has a little different view of our financial future.


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## VoorTrekker (Oct 7, 2012)

So what did he say, before I waste 24 minutes to find out if it is worth it?


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## Tweto (Nov 26, 2011)

He is calling for hyper-deflation (never heard of it). He also said that PM's will drop in value before they recover.

Sorry for not saying it in the OP!

I posted this because of unique perspective.


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## LincTex (Apr 1, 2011)

http://www.investopedia.com/terms/h/hyperdeflation.asp

Hyperdeflation
Filed Under » Deflation, Macroeconomics

Dictionary Says 
Definition of 'Hyperdeflation'
An extremely large and relatively quick level of deflation in an economy. Hyperdeflation occurs when the general price level of goods or services in an economy falls drastically in a short period of time, causing the real value of a currency to actually increase in that time. This increase results in debts being more pronounced as the real value increases and the value of the currency falls.

Investopedia Says 
Investopedia explains 'Hyperdeflation'
While there are no official definitions of what price levels must fall to and how quickly for deflation to be defined as hyperdeflation, generally hyperdeflation can lead to a deflationary spiral in which a deflationary environment leads to lower production, lower wages and demand, and thus lower price levels, continuing until an outside force (government for example) steps in.

http://www.zerohedge.com/news/hyperdeflation-vs-hyperinflation-exercise-chaos-theory-dynamics

Hyperdeflation Vs Hyperinflation: An Exercise In Centrally Planned Chaos Theory
Tyler Durden's picture
Submitted by Tyler Durden on 01/10/2012 13:16 -0400

One of the recurring analogues we have used in the past to describe the centrally planned farce that capital markets have become and the global economy in general has been one of a increasingly chaotic sine wave with ever greater amplitude and ever higher frequency (shorter wavelength). By definition, the greater the central intervention, the bigger the dampening or promoting effect, as central banks attempt to mute or enhance a given wave leg. As a result, each oscillation becomes ever more acute, ever more chaotic, and increasingly more unpredictable. And with "Austrian" analytics becoming increasingly dominant, i.e., how much money on the margin is entering or leaving the closed monetary system at any given moment, the same analysis can be drawn out to the primary driver of virtually everything: the inflation-vs-deflation debate. This in turn is why we are increasingly convinced that as the system gets caught in an ever more rapid round trip scramble peak deflation to peak inflation (and vice versa) so the ever more desperate central planners will have no choice but to ultimately throw the kitchen sink at the massive deflationary problem - because after all it is their prerogative to spur inflation, and will do as at any cost - a process which will culminate with the only possible outcome: terminal currency debasement as the Chaotic monetary swings finally become uncontrollable. Ironically, the reason why bring this up is an essay by Pimco's Neel Kashkari titled simply enough: "Chaos Theory" which looks at unfolding events precisely in the very same light, and whose observations we agree with entirely. Furthermore, since he lays it out more coherently, we present it in its entirety below. His conclusion, especially as pertains to the ubiquitous inflation-deflation debate however, is worth nothing upfront: "I believe societies will in the end choose inflation because it is the less painful option for the largest number of its citizens. I am hopeful central banks will be effective in preventing runaway inflation. But it is going to be a long, bumpy journey until the destination becomes clear. This equity market is best for long-term investors who can withstand extended volatility. Day traders beware: chaos is here to stay for the foreseeable future." Unfortunately, we are far less optimistic that the very same central bankers who have blundered in virtually everything, will succeed this one time. But, for the sake of the status quo, one can hope...

Chaos Theory, via Pimco
Debating a future of inflation vs. deflation is radically new territory for investors. The chaotic nature of the choice facing societies is whipsawing equity markets and dominating bottom-up factors.
Equity investors seem to be pricing in a combination of outcomes, with the largest weighting going to a goldilocks, mild inflation scenario. But the market's large daily swings reflect jumps back and forth as investors update the probabilities of very different destinations.

Once per quarter investment professionals from across PIMCO's global offices gather in Newport Beach for our Economic Forum. These sessions have been the foundation of PIMCO's investment process for years; we debate and update our short-term and long-term views for the global economy, and, from that, for individual asset classes, such as government bonds, corporate bonds, mortgages and stocks. Last month we gathered for our December Forum and the topic that dominated the discussion, as it has in recent quarters, was the fate of the euro. Will the eurozone break up? Will European governments impose extreme, deflationary austerity to control their deficits? Will the ECB monetize the region's debts and risk inflation in order to preserve the common currency?

Listening to my colleagues make their arguments during the Forum, I was taken back to my days fifteen years ago when I was an engineering graduate student at the University of Illinois. You may wonder what a debate about the global economy has to do with engineering. It reminded me of one of my favorite classes: nonlinear systems - the study of natural and man-made systems that, at times, behave very oddly. Allow me to explain.

Most systems we interact with every day are linear: if you change an input to the system by a small amount, the output will also change by a small amount. Think about driving to work: if you leave your house 10 minutes early, you will usually arrive about 10 minutes early. If you turn up the flame on a stove a little, the pot of water will heat a little faster.

But some systems, under certain conditions, behave very differently. These systems are said to have "sensitive dependence on initial conditions" - very small changes of the inputs can lead to enormous variations of the output. Mathematicians have given these systems the label of being "chaotic" and experts in the field are called "chaoticians." (The term "chaotician" always struck me as ridiculous. Could you imagine introducing yourself this way?) The weather is the best example of a real-life chaotic system. Predicting the weather beyond a few days is impossible because minor variations lead to large changes in the future. Go back to the driving example: if you leave 10 minutes late, rather than 10 minutes early, you might hit rush hour, and the extra 10 minutes ends up costing you an hour. Chaos theory describes the conditions under which a system changes from linear and smooth to highly nonlinear and violent, where minor changes to the inputs will lead to enormous variations of the output.

Western societies are facing a seemingly minor choice, but that choice will lead to vastly different endpoints for the global economy and for asset prices.

In a "normal" economic environment investors debate a narrow range of outcomes: will the U.S. grow by 2.8% or 3.2%? Will inflation remain at 2.0% or climb to 2.3%? Debating a future of inflation vs. deflation is radically new territory for investors. The chaotic nature of the choice facing societies is whipsawing equity markets and dominating bottom-up factors.

While we don't know with certainty which path societies will choose, we can identify a few potential outcomes and make reasoned assessments of what they mean for the economy and for equities:

1. Austerity and deflation
Borrowing money to consume allows families and societies to live beyond their means - for a time. Once the debt accumulation has run its course, reality has to set back in. For a family that may mean getting rid of a second car, dining out less often or cuts which are far more painful. It necessarily means consuming less, and to the extent that consumption equates to standard of living, it likely also means a reduced living standard. Societies face a similar challenge. The U.S. and parts of Europe have enjoyed exaggerated living standards enabled by borrowing from our future. Now that creditors are warning us they won't let this continue forever, governments may reach consensus to cut spending and/or increase taxes to bring budgets into balance. Whatever the mix, by definition this likely means lower economic growth and perhaps a lower level of overall economic activity until debts are worked off and real growth restored. Deflation runs the risk of creating a vicious cycle, where prices fall, causing wages to fall, causing spending to fall, causing prices to fall further. This is a lower risk for a growing population such as in the United States, whereas Japan continues to suffer from such stagnation today. Europe's demographics are much worse than America's. The outlook for equities in this environment is negative in the short run and potentially very negative in the long run if a deflationary cycle kicks off. Corporate earnings at some point must be linked to economic growth, and stock prices represent the present value of a future stream of earnings. In a deflationary environment cash will be king - because your purchasing power will increase by just sitting on the sidelines.

2. Explicit default
The scenario of governments not paying back their creditors is extremely unlikely for countries that have their own currencies. Why default on your debt, which would trigger a crisis of confidence in your economy, when you can simply print more money? Of course, unpredictable politics can make the unthinkable possible, as we came dangerously close to seeing this summer with Washington's debt ceiling debacle. In Europe it is likely some smaller countries, such as Greece, will default on their debt. They simply have taken on more debt than their economies can reasonably hope to pay back. And they don't have their own currency, so printing drachma is not an option. It is hard to imagine a scenario where an explicit default would be good for equities. Just how bad depends on the size of the country defaulting and the extent of the preparations put in place to minimize the damage. For example, if countries have capitalized their banks to withstand the losses from a Greek default and the ECB funds Italy and Spain so they are not at risk of contagion, the impact to equities should be more muted. An uncontrolled default, or a default of a larger country would be very bad for risk assets and could trigger a deflationary spiral described above.

3. Mild inflation
Mild inflation is the goldilocks scenario: central banks print money to help fund governments while they employ structural reforms to make their economies more competitive and generate long-term growth. Such structural reforms take time to produce results, often many years. Printing money provides governments with that time while, in theory, reducing the sacrifices citizens must make, and the inflation that usually follows makes the fixed debt stock easier to service, because prices (and hence taxes) increase. It often results in a falling currency, which makes exports more competitive. It is easy to see why countries with their own currencies usually choose inflation as the preferred response to overwhelming debt. Although creditors suffer because the purchasing power they were expecting has been reduced, society has to make fewer hard choices and can continue to enjoy its exaggerated standard of living until the pro-growth economic reforms come to the rescue. In a scenario of mild inflation, equities should do well. Prices are contained, the economy functions and corporate profits should continue increasing. Of course, if policymakers do not use this time to implement real economic reforms, which can still be painful for certain constituencies, mild inflation doesn't solve anything. It just delays the necessary day of reckoning.

4. Runaway inflation
The danger of mild inflation is that it may not remain mild. Inflation is driven by expectations, the collective beliefs of what the future holds that reside in the minds of millions of people. If people expect prices to go up, they will demand higher wages so they can maintain their standard of living. This will increase the cost of labor, pushing the cost of goods higher. A vicious cycle of inflation can take hold as prices climb higher and higher. The U.S. suffered from double-digit inflation in the 1970s, and in an extreme case, Germany suffered from hyper-inflation following World War I. Runaway inflation is devastating because an economy loses its anchor. People are afraid to hold cash because their purchasing power drops rapidly and so they must hoard real assets. Interest rates soar causing investments to plummet. Central bankers are generally afraid of attempting to induce mild inflation for fear they may nudge expectations more than they hoped. Nudging the collective beliefs of millions of people is an inexact science. The Federal Reserve is cautiously experimenting with its expectations-nudging-arsenal with its recent communication innovations. Runaway inflation would be very bad for most risk assets and equities in particular because of the devastating affects on real economic growth and the increases in costs of production and of capital. A loss of faith in paper currencies would mean gold and real assets would likely be king.

5. Miraculous growth
A list of potential solutions to our unsustainable debt load would be incomplete without including a high growth scenario. It is true there could be a major breakthrough in, for example, energy technology that spurs extraordinary economic growth, which would drive tax revenues higher and enable governments to pay down their debt without asking their citizens to give up their exaggerated living standards. In such a scenario, equity returns would likely be very strong, especially for the sector enjoying the innovation. The technology sector in the 1990s was an example. However, such a scenario today is low-probability. We invest based on what we think is likely to happen, rather than what we would like to happen. Policymakers can't count on a growth miracle and neither can investors. And don't forget the bumper tax revenues of the 1990s actually led to increased government spending in some cases when politicians wrongly assumed the increased tax revenues would last forever.

While the expected value of two equally possible outcomes, 0 and 1, is 0.5, there is zero chance the outcome will actually be 0.5. It will either be 0 or 1. Based on the level of the stock market today, with a price to earnings ratio of about 13x in the developed world and 11x in the emerging economies, equity investors seem to be pricing in a combination of these outcomes, with the largest weighting going to the goldilocks, mild inflation scenario. But the market's large daily swings reflect jumps back and forth as investors update the probabilities of these very different destinations.

I believe societies will in the end choose inflation because it is the less painful option for the largest number of its citizens. I am hopeful central banks will be effective in preventing runaway inflation. But it is going to be a long, bumpy journey until the destination becomes clear. This equity market is best for long-term investors who can withstand extended volatility. Day traders beware: chaos is here to stay for the foreseeable future.


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## Tweto (Nov 26, 2011)

After reading this, it looks like this may be our future, I hope not, but in the definition the recent past and current fed policy's seem to match up with what they had to do to protect the economy from deflation and even maybe hyper deflation.

If this is the future then per the article cash would be king and equities would collapse, wages dump, mass layoffs, a new lower standard of living. 

PM's would dump because of knee jerk reaction to the economy but would in time become the place to be. ( it sounds like there could be a sweet spot right after the collapse to buy PM's)

It the big picture none of this is good!


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## Woody (Nov 11, 2008)

LincTex, you always have the most informative posts! Good explanation of all scenario's. I see trouble coming but have no real idea which one it is to be. I'm going to continue buying (it is good for the consumer economy!) the goods and sundries I feel I will need and dump what is left into silver. Could PM's dump? Sure. But my investments in it range from $3 to $30 silver so will average out to good to go. And yes, I still keep 6 months worth of fiat in hand, just in case.


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## BillS (May 30, 2011)

I disagree with Stockman on the idea that we won't have hyperinflation. All the money printing by the Fed will lead to the collapse of the dollar. Weimar Germany printed money like the Fed and they had hyperinflation. Maybe it was a hyperinflationary depression. That's what we'll have. We're in a depression already. Just wait until we have $10 gas and the economy will take another step towards collapse.


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## BlueShoe (Aug 7, 2010)

Marc Faber said 100% chance of hyperinflation in the USA when the Fed and government embarked on their current path. He said that a little over 3 yrs ago I believe. Jim Rogers said it's probable. Several others I've listened to on King World said so too going back to 2009 at least.
Many of them use the phrase "House of Cards."


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## Geek999 (Jul 9, 2013)

We're in uncharted territory, so no one knows for sure how this will play out. Large deficits and massive money printing argues for infllation. A sclerotic economy with high levels of unemployment argues for deflation. We are engaging in an experiment and we will know the outcome when it is over.


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## Tweto (Nov 26, 2011)

The best I can tell is that all rules for our current financial and world times is new and has never been seen before. Yes, you can find similarities to previous financial history, but nothing that is the same as now.

I have no idea weather we will be going into Depression or Inflation.

Here's my 2 cents worth

The Fed is "printing money". from what I can find out is that this money is actually just in a computer and not hard cash. The money is being distributed to banks to shore-up their positions in case of a run on the bank (in short they are afraid of depression). Some of the money is going to back-up mortgages.

The flow of money is at historical lows, which means that the banks are not loaning the money. To get inflation, the banks have to start loaning out the money to get the flow of money back to normal ranges. The last I heard is that to get a home loan a FICA score of 750 or higher is required to get the prime rates. Only a small percentage of borrowers have a 750 or higher. Currently the majority of homes being sold are being sold for cash and used for rental properties.

The government is making money to stimulate inflation but unless the banks start loaning money, there will be no inflation. The banks are not going to loan out any money to risking individuals, and individuals will not borrow any money because they are not sure of their future. For now they will just rent. So unless the economy improves greatly and middle income jobs start to come back this is a dead issue.

The government also wants inflation because it leverages down the national debt.

So far the government is doing everything in their power to produce inflation and they have failed to do so. What they have not been saying is that their biggest fear is Depression. By some accounts the we have been bouncing in and out of Depression for several years.

More and more talking heads are predicting depression, not inflation in our future.

So here's my best guess, we are looking at depression in our near future say the next 3-5 years and then inflation after that.


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## BillS (May 30, 2011)

Tweto said:


> The government is making money to stimulate inflation but unless the banks start loaning money, there will be no inflation. The banks are not going to loan out any money to risking individuals, and individuals will not borrow any money because they are not sure of their future. For now they will just rent. So unless the economy improves greatly and middle income jobs start to come back this is a dead issue.


That part isn't true. The government has trillion dollar deficits. The Fed creates whatever money the treasury can't borrow at artificially low interest rates. So that newly created money is getting out into the economy. Plus, the Fed creates whatever money is necessary to cover the bonds being turned in. That money is hitting the economy as well.

The reason why we haven't had hyperinflation yet is the slowing economy. The declining velocity of money is making up for the increase in the money supply.

You might find this interesting:

http://www.cnsnews.com/news/article...y-forced-issue-1t-new-debt-first-6-weeks-fy14

CNSNews.com) -* Between Oct. 1, 2013, the first day of fiscal 2014, and Nov. 14*-which was less than a month after Congress agreed to temporarily suspend the legal limit on the federal debt-the* Treasury was forced to issue more than $1 trillion in new debt*.

During that time, according to the Daily Treasury Statement, the Treasury issued $1,014,215,000,000 in new bills, notes, bonds and other securities.

*The government needed this $1,014,215,000,000 to cover government obligations and expenses that exceeded the $255,080,000,000 it raked in through tax revenues during the same six-week period.
*
Where did that combined $1,014,215,000,000 in newly borrowed money and $255,080,000,000 in new tax revenues go?

The lion's share went to payoff maturing securities the Treasury had sold before and had now come due.

*In total, according to the Daily Treasury Statement, the Treasury needed to redeem $879,734,000,000 in maturing debt during the first six weeks of the fiscal 2014.*

After that, the government's biggest expenses were $98.853 billion in Social Security benefits, $77.704 billion in Medicare expenses, $35.304 billion to Defense Department vendors, $34.623 billion for Medicaid, $20.537 billion for the salaries for federal workers (who have now been compensated for the time they missed during the partial shutdown), $20.155 billion for the Department of Education, $13.060 billion for the Department of Agriculture's Food and Nutrition Service (which includes the food stamp program), $11.152 billion in Health and Human Services Department grants, $10.648 billion for Housing and Urban Development Department programs, and $9.172 billion to buy insurance for federal employees over and above the $20.537 billion they were paid in salaries.

The Treasury also had $67.234 billion cash on hand at the close of business on Nov. 14--but that was down $21.152 billion from $88.386 billion cash on hand the Treasury had when the fiscal year started Oct. 1.

So, in addition to the $1,014,215,000,000 in new borrowing the Treasury undertook in the first six week of fiscal 2014, it also drew down its cash by $21.152 billion.

When Treasury Secretary Jacob Lew appeared in the Senate Finance Committee on Oct. 10 and called for Congress to increase the legal limit on the federal debt, he lamented that people do not understand that the Treasury needs to constantly borrow new money to meet ongoing expenses and pay off the tremendous volume of old debt that must be redeemed.

- See more at: http://www.cnsnews.com/news/article...-debt-first-6-weeks-fy14#sthash.rPRzCars.dpuf


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## RevWC (Mar 28, 2011)

China Is On A Debt Binge And A Buying Spree Unlike Anything The World Has Ever Seen Before
By Michael Snyder, on November 26th, 2013

When it comes to reckless money creation, it turns out that China is the king. Over the past five years, Chinese bank assets have grown from about 9 trillion dollars to more than 24 trillion dollars. This has been fueled by the greatest private debt binge that the world has ever seen. According to a recent World Bank report, the level of private domestic debt in China has grown from about 9 trillion dollars in 2008 to more than 23 trillion dollars today. In other words, in just five years the amount of money that has been loaned out by banks in China is roughly equivalent to the amount of debt that the U.S. government has accumulated since the end of the Reagan administration. And Chinese bank assets now absolutely dwarf the assets of the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England combined. You can see an amazing chart which shows this right here. A lot of this "hot money" has been flowing out of China and into U.S. companies, U.S. stocks and U.S. real estate. Unfortunately for China (and for the rest of us), there are lots of signs that the gigantic debt bubble in China is about to burst, and when that does happen the entire world is going to feel the pain.

It was Zero Hedge that initially broke this story. Over the past several years, most of the focus has been on the reckless money printing that the Federal Reserve has been doing, but the truth is that China has been far more reckless...

You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion - some two and a half times the GDP of China!

Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!
I was curious to see what all of this debt creation was doing to the money supply in China. So I looked it up, and I discovered that M2 in China has grown by about 1000% since 1999...

So what has China been doing with all of that money?

Well, they have been on a buying spree unlike anything the world has ever seen before. For example, according to Reuters China has essentially bought the entire oil industry of Ecuador...

China's aggressive quest for foreign oil has reached a new milestone, according to records reviewed by Reuters: near monopoly control of crude exports from an OPEC nation, Ecuador.

Last November, Marco Calvopiña, the general manager of Ecuador's state oil company PetroEcuador, was dispatched to China to help secure $2 billion in financing for his government. Negotiations, which included committing to sell millions of barrels of Ecuador's oil to Chinese state-run firms through 2020, dragged on for days.
And the Chinese have been doing lots of shopping in the United States as well. The following is an excerpt from a recent CNBC article entitled "Chinese buying up California housing"...

At a brand new housing development in Irvine, Calif., some of America's largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It's a rebirth for U.S. construction, but the customers are largely Chinese.

"They see the market here still has room for appreciation," said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. "What's driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere."
Apparently a lot of these buyers have so much cash that they are willing to outbid anyone if they like the house...

The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount.

"The price doesn't matter, 800,000, 1 million, 1.5. If they like it they will purchase it," said Helen Zhang of Tarbell Realtors.
So when you hear that housing prices are "going up", you might want to double check the numbers. Much of this is being caused by foreign buyers that are gobbling up properties in certain "hot" markets.

We see this happening on the east coast as well. In fact, a Chinese firm recently purchased one of the most important landmarks in New York City...

Chinese conglomerate Fosun International Ltd. (0656.HK) will buy office building One Chase Manhattan Plaza for $725 million, adding to a growing list of property purchases by Chinese buyers in New York city.

The Hong Kong-listed firm said it will buy the property from JP Morgan Chase Bank, according to a release on the Hong Kong Stock Exchange website.

Chinese firms, in particular local developers, have looked overseas to diversify their property holdings as the economy at home slows. Chinese individuals also have been investing in property abroad amid tight policy measures in the mainland residential market.

Earlier this month, Chinese state-owned developer Greenland Holdings Group agreed to buy a 70% stake in an apartment project next to the Barclays Center in Brooklyn, N.Y., in what is the largest commercial-real-estate development in the U.S. to get direct backing from a Chinese firm.
And in a previous article, I discussed how the Chinese have just bought up the largest pork producer in the entire country...

Just think about what the Smithfield Foods acquisition alone will mean. Smithfield Foods is the largest pork producer and processor in the world. It has facilities in 26 U.S. states and it employs tens of thousands of Americans. It directly owns 460 farms and has contracts with approximately 2,100 others. But now a Chinese company has bought it for $4.7 billion, and that means that the Chinese will now be the most important employer in dozens of rural communities all over America.
For many more examples of how the Chinese are gobbling up companies, real estate and natural resources all over the United States, please see my previous article entitled "Meet Your New Boss: Buying Large Employers Will Enable China To Dominate 1000s Of U.S. Communities".

But more than anything else, the Chinese seem particularly interested in acquiring real money.

And by that, I mean gold and silver.

In recent years, the Chinese have been buying up thousands of tons of gold at very depressed prices. Meanwhile, the western world has been unloading gold at a staggering pace. By the time this is all over, the western world is going to end up bitterly regretting this massive transfer of real wealth.

Unfortunately for the Chinese, it appears that the unsustainable credit bubble that they have created is starting to burst. According to Bloomberg, the amount of bad loans that the five largest banks in China wrote off during the first half of this year was three times larger than last year...

China's biggest banks are already affected, tripling the amount of bad loans they wrote off in the first half of this year and cleaning up their books ahead of what may be a fresh wave of defaults. Industrial & Commercial Bank of China Ltd. and its four largest competitors expunged 22.1 billion yuan of debt that couldn't be collected through June, up from 7.65 billion yuan a year earlier, regulatory filings show.
And Goldman Sachs is projecting that China may be facing 3 trillion dollars in credit losses as this bubble implodes...

Interest owed by borrowers rose to an estimated 12.5 percent of China's economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and "ultimately overwhelm borrowers."

Meanwhile, China's total credit will be pushed to almost 250 percent of gross domestic product by then, almost double the 130 percent of 2008, according to Fitch.

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.
The Chinese are trying to get this debt spiral under control by tightening the money supply. That may sound wise, but the truth is that it is going to create a substantial credit crunch and the entire globe will end up sharing in the pain...

Yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing's relentless drive to tighten the monetary spigots in the world's second-largest economy.

The higher yields on government debt have pushed up borrowing costs broadly, creating obstacles for companies and government agencies looking to tap bond markets. Several Chinese development banks, which have mandates to encourage growth through targeted investments, have had to either scale back borrowing plans or postpone bond sales.
This could ultimately be a much bigger story than whether or not the Fed decides to "taper" or not.

It has been the Chinese that have been the greatest source of fresh liquidity since the last financial crisis, and now it appears that source of liquidity is tightening up.

So as the flow of "hot money" out of China starts to slow down, what is that going to mean for the rest of the planet?

And when you consider this in conjunction with the fact that China has just announced that it is going to stop stockpiling U.S. dollars, it becomes clear that we have reached a major turning point in the financial world.

2014 is shaping up to be a very interesting year, and nobody is quite sure what is going to happen next.

http://theeconomiccollapseblog.com/...nlike-anything-the-world-has-ever-seen-before


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## Woody (Nov 11, 2008)

BillS said:


> When Treasury Secretary Jacob Lew appeared in the Senate Finance Committee on Oct. 10 and called for Congress to increase the legal limit on the federal debt, he lamented that people do not understand that the Treasury needs to constantly borrow new money to meet ongoing expenses and pay off the tremendous volume of old debt that must be redeemed.


BAM!

Nothing to add but need to make this more than 10 characters.


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## Woody (Nov 11, 2008)

RevWC. I won't quote you and try to cull through your post. But will give you credit for the post!

Of course the Chinese are buying up all they can here! They are very heavily invested in the USD and need to grab something tangible to cover those dollar investments. If you were an investor there, would you rather have one million in U.S. Govt. bonds or a one million dollar real estate investment? When the dollar crashes you have nothing if you have bonds or treasury notes. If you have real estate, even if it loses half its value, you still have something. That is also the reason they are buying gold and silver. Like us here, we see the inevitable coming and are trying to keep at lease a portion of our assets in something that will hold value.


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## Tweto (Nov 26, 2011)

BillS said:


> That part isn't true. The government has trillion dollar deficits. The Fed creates whatever money the treasury can't borrow at artificially low interest rates. So that newly created money is getting out into the economy. Plus, the Fed creates whatever money is necessary to cover the bonds being turned in. That money is hitting the economy as well.
> 
> The reason why we haven't had hyperinflation yet is the slowing economy. The declining velocity of money is making up for the increase in the money supply.
> 
> ...


BillS

I will not put up a defense for my post other than to say that I do find issues with your response to my post. I used to think that hyperinflation was the direction that we were heading until I dung deeper. This is very similar to when I was a liberal until I was about 30 and then a light came on and I had a very clear and without reservations attitude change to conservative.

My position it that what is going on in the US right now has never happened before. There are no history books or university degree programs that would have covered this. History is being made NOW. Even Greenspan, Bernanke and Yellin have said that several events were completely unexpected when they happened and they did not see them coming. If these people were without the vision then people like us have no chance. The best we can do speculate and that is what I'm doing.

Traditional knowledge of what's going on would spell out inflation or hyperinflation, which I believed up until about a year ago. Now that I'm keeping an open mind about what's going on, deflation does appear more likely followed by hyperinflation years out.

Some of the posts that I'm reading appear to come directly out of a text book and is the standard response, it's hard to find independent thinkers. What I see for the future is very hard times and some surprises (black swans) to smack us in the face.


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## hiwall (Jun 15, 2012)

Obviously no one knows what is going to happen but most all agree that something bad WILL happen. It is like knowing you are about to get shot--does it really matter if it is with a 45 or a 44? 
Plus this is all speculation by every single person. There is no doubt this exact situation has never happened in history. Yes there are similarities but there are also differences. This is like a brand new carnival ride that you are not sure what is going to happen but you know you have to hang on tight.


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## hiwall (Jun 15, 2012)

Europe is still pretty bad and they are concerned about deflation.



> The facts support a weaker Euro and a sell off in risk assets like European Banks along with a substantial correction on Wall St.
> Spain said it has technically escaped a two-year recession by posting feeble growth in the third quarter. But the unemployment rate is still at 26 percent.
> Gross domestic product, or total economic output, edged up by a mere 0.1 percent in the third quarter of 2013, the National Statistics Institute said, confirming preliminary data released a month earlier.
> The upward tick snapped an unbroken two-year downturn in activity in Spain, the euro zone's fourth largest economy.
> ...


http://www.livetradingnews.com/european-financial-crisis-returns-20928.htm#.Upi-IeJ4Sux


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## Woody (Nov 11, 2008)

hiwall said:


> Europe is still pretty bad and they are concerned about deflation.
> 
> http://www.livetradingnews.com/european-financial-crisis-returns-20928.htm#.Upi-IeJ4Sux


And all this good news about the 'recovery' we have been in! I could sure use a little deflation at the grocery store. Remember though, all these numbers are from 'official sources' and may not reflect reality.


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## LincTex (Apr 1, 2011)

Woody said:


> And all this good news about the 'recovery' we have been in! Remember though, all these numbers are from 'official sources' and may not reflect reality.


 If you replace one employee at $21 an hour with three employees at $7, you just "increased jobs" by 200%... that's how the numbers game works. Sure seems to me a LOT of people are recently "underemployed".


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## Woody (Nov 11, 2008)

You are looking at one of them! I lost a good middle income 'career' recently. I have a 'job' at much less than half of what I was making. I am still looking to get back to my career but in the meantime, I do have to do something to bring home some scraps of bacon. AND, these jobs are not 'full time' 40 hours a week jobs, no sir. You are hired for 90 days or 6 months on a 'trial' basis. I am currently working 24 hours a week, three days that is. I could find another 'part time' job to fill the other hours but I spend that time online [email protected]@king to get back to a real job. So, if I were to have two (or three!) part time jobs that makes the 'job creation' numbers soar!

Being newly thrown into this job market has made me see that what we all have suspected is actually the way it is. Just about everyone I work with, except for middle to upper management, has more than one job. Even some of the managers 'moonlight' to get enough to keep up appearances. No one has a positive outlook and most think things will only get worse. No, none are really into prepping. They are struggling to meet day to day needs. Yes, that includes Black Friday big screen TV purchases. How they can keep a family going on what I make, when I struggle and I am single with a really low mortgage payment, makes me wonder.


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## invision (Aug 14, 2012)

Woody said:


> And all this good news about the 'recovery' we have been in! I could sure use a little deflation at the grocery store. Remember though, all these numbers are from 'official sources' and may not reflect reality.


Yep, don't you just love DC's fuzzy math...

Speaking of grocery's went to Krogers Monday to pick up the stuff to make some Mexican... Bought 2 lbs of hamburger - get this $4.39/lb... A few weeks ago it was $4.09, wth? .39 cent increase??? A 6.8% increase??? It's not much, but 6.8%?


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## hiwall (Jun 15, 2012)

The cost of the 'twelve days of Christmas' is up 8% from last year, but there is no inflation.


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## helicopter5472 (Feb 25, 2013)

invision said:


> Yep, don't you just love DC's fuzzy math...
> 
> Speaking of grocery's went to Krogers Monday to pick up the stuff to make some Mexican... Bought 2 lbs of hamburger - get this $4.39/lb... A few weeks ago it was $4.09, wth? .39 cent increase??? A 6.8% increase??? It's not much, but 6.8%?


Wait a minute isn't that fuzzy math.... went from $4.09 to $4.39 that's a .30 cent increase not .39 cent ??? :scratch


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## invision (Aug 14, 2012)

helicopter5472 said:


> Wait a minute isn't that fuzzy math.... went from $4.09 to $4.39 that's a .30 cent increase not .39 cent ??? :scratch


Yeah was typing to fast on the iPad... Oops


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## helicopter5472 (Feb 25, 2013)

invision said:


> Yeah was typing to fast on the iPad... Oops


Isn't that how the government bean counters do it????


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## invision (Aug 14, 2012)

helicopter5472 said:


> Isn't that how the government bean counters do it????


Nope they use an etch-a-sketch.... Lol


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