Wednesday, March 25, 2020

No, Peter Schiff, this is not hyperinflation

The usual suspects have come out of the woodwork, Peter Schiff and Jim Rickards, warning of hyperinflation and the necessity of buying gold yesterday.

They are both wrong.  A lot of people scrapping for gold at $1600/oz are going to sell this stuff in frustrated desperation for $1000, maybe less, because they prefer to have dollars again.

Today is not hyperinflation, nor is it next week.  The economy has come to a full stop.  This is a deflationary apocalypse.

Does anyone seriously believe in a wage-price spiral at this juncture?  The Fed is shoveling cash into a black hole, desperate to stave off cascading debt defaults and complete chaos.  They will shovel a lot more, so that we may survive this crisis.  They simply have no choice.

Daniel Sullivan says it's a "bank holiday", and he may be onto something.  Enough of this was in motion or telegraphed ahead of time, such that the Wuhan coronavirus provided the trigger for the crisis.  There was even a great topping wave count on the S&P 500.

The Fed is desperately trying to keep our economy and society from imploding.  They and Congress will create a huge mass of "money" as quickly as possible, buy anything, prop up whatever, because we still have the world reserve currency, and so we can do this.  It's a feature.  And the rest of the world is counting on us to do it.

Let's review where we are again on the long-term chart, with annotations added to indicate whether we are at risk of hyperinflation.

As we are screeching south towards a low of maybe 520 on the S&P 500, this indicates that we are not at risk of hyperinflation.  Money is scared and scarce!  The flows are all broken.  We are in a crisis, it will be vicious, and maybe also brief (over as soon as August?).

They will stuff all the channels, they will feed all the geese, they will buy all the paper at par, and it won't be fair, and you won't like it.  But it may just work, for now, and that is all that matters.

The hyperinflation comes later.

The hyperinflation comes on the heels of one of two reactions to surviving this crisis.  Either we gain a new confidence in our ability to print money at will and to buy all the things, so we keep doing it as formal policy (MMT), thinking we can "manage" it; or we find ourselves tragically stuck here, unable to recover to a new normal.  The built-in $1T Federal deficit will become $2T annually, eventually $3T, and we no longer believe in the worth of this debt or of our money.

Hyperinflation arrives when we have to print money to pay the interest on all of this debt.

The rest of the world will suffer comparably, as we apparently bounce back from this, while they are still hurting, because we create the money.  Hyperinflation arrives when the envy and resentment for this privilege drives them to end the system.

Hyperinflation arrives when the tens of millions of New Americans either feel no obligation to pay for these ancient obligations, or they are just not productive enough to support them.

Hyperinflation arrives when we have even dumber scams than crypto-currency and $900 $TSLA, that we cease to give any credence to any supposed values.

This could happen next year or a decade from now.  The current crisis sets the stage for us to bounce back and evolve into that new normal, where we finally exhaust the US dollar as the world reserve currency.

Current wave count, I think we finished W4 today and are headed down in W5 of A, which should undercut the topping megaphone a bit, reaching 2015 or so at the end of March.

SPX hourly

April is the relief rally.  We will get positive news on the Wuhan coronavirus front, have a lot of free, fresh new money circulating in the system, and we might even get back into the office.


christiangustafson said...

Sadly, one of the late-late-cycle actions near me on the north end of Seattle was to close my neighborhood Value Village thrift store. I don't think apartments or condos will fill this space any time soon.

Ken Smith said...

We're turning Japanese, I think we're turning Japanese, I really think so.

christiangustafson said...

The hyperinflation comes after we destroy any shred of integrity in the system, we completely shoot the moon on moral hazard, like with companies like Boeing. We discredit the notion of credit.

But it's still early.

Gaza said...

Randall Beehomes said...

I wont pay my mortgage. Corona and all

umdengineer said...

If hyperinflation happens it would be easy to pay your mortgage... which is why it won't happen (hyperinflation).

The Fed (with the help of the other Fed) will always create more debt (which is deflationary) than print money (which is inflationary).

It's an incredible balancing act, but somehow they do it.

Ken Smith said...

"If hyperinflation happens it would be easy to pay your mortgage... which is why it won't happen (hyperinflation)." Exactly! The Japanese model is what CB's are aiming for! They will never disclose this of course.

Ken Smith said...

CB's want people to believe they are creating massive inflation, when in fact they are engineering the opposite. Everyone who bought a massively overpriced home in the last few years, is wishing they had that money back. Guys like Peter Schiff help perpetuate this propaganda.

jimmy said...

What is the name of the site that had the real estate blog?

christiangustafson said...

There were lots of those back in the day. What are you looking for?

e.g. Mortimer will give you Vancouver, BC.

jimmy said...

The pic posted by the Houston real estate investor. Whatever that blog or twitter feed is.

christiangustafson said...

Oh, duh, sorry. It looks like a Reddit forum post.

You lads may find some fun stuff in there -- it looks like they are being actively trolled ATM. Post links, please.

It looks like we may get the bottom of the megaphone at 2100 SPX after all, into EOM.

Kevin said...

I'm in the A-B-C of either a 2, or a 4. If so, we're in for a modest pullback in B, before we rally to SP 2750ish. Then watch out below... said...
This comment has been removed by the author. said...

What is the difference between Fed creating more debt and Fed "printing" more money? said...

I suggest to read an essay about the causes of Hyper Inflation in Weimar Germany.

TSE said...

Simply put - Overshoot is staring you in the face.

"CIRCUMSTANCE: The Age of Exuberance is over, population has already overshot carrying capacity, and prodigal Homo sapiens has drawn down the world's savings deposits.

CONSEQUENCE: All forms of human organization and behavior that are based on the assumption of limitlessness must change to forms that accord with finite limits".

If you don't own a farm - and can sustainably Farm - well.....