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Shredding the Treasuries would present an amusing paradox; many would argue it would cause an immediate hyperinflation. Nope. It would do exactly the opposite; the dollar would get MUCH stronger.

Karl, you could easily be wrong on that. Value is set by supply and demand. If demand falls faster than supply, value falls even though supply is falling. If shredding the Treasuries caused foreigners and Americans to start desperately dumping dollars, we could see the value of the dollar fall, relative to other currencies.

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Hyperinflation is not a monetary phenomenon, it is a government scam. It's impossible to get hyperinflation out of the system we have today,...

Flyanddive, I don't think that follows from my definition of hyperinflation, does it? What definition are you using, please?

I like what Lauren says, but man I wish she would just sit on her hands.

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Karl, I don't think the world markets would appreciate tearing up Chinese treasuries. The reason treasuries have value is because they are considered safe. If you act in a manner that suddenly throw them into the maybe not safe category, it would negatively reflect in the demand and value of treasuries.

They're only unsafe if you invade our nation. Simple answer to that problem: Don't do that ****, or if you do, don't expect that your alleged "assets" are safe.

But would not the Chinese file a claim against the US in a court of law?

Chinese claim: US attacked Iran with the stuxnet virus so it is OK because the US set the precedent for this type of behavior. The US actually claims to have damaged physical property...

That is like saying it is OK for your dog to come and poop on my grass but it is not OK for my dog to go and poop on yours.

"Gentlemen (the men in the black robes), you have issued your judgment. I simply respond that you are of course free to try to enforce it; I wish you the best of luck."

Didn't we tell a country to stuff it after a war? French maybe?

This discussion depends on the definition of hyperinflation. I go by Gonazolo Lira’s work on this, so I’ll quote him:

“ If we think that hyperinflation is simply inflation on steroids—inflation-plus—inflation with balls—then it would seem to be the case that, in our current deflationary economic environment, hyperinflation is not simply a long way off, but flat-out ridiculous.

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency. “

thanks drk, love me some gonzalo lira

This jives with Karl's point about gold being pretty useless in a hyperinflationary collapse. I wonder what those goods are that would be so in demand for people evacuating currency, other than the obvious food, consumables, etc.

Hey I should add: Karl, I bet you get frustrated when you explain the same stuff over and over (to us dummies, ha ha!)

Well, being an instructor, often to some who have less cerebral cortex than many on this site, I just wanted to say: I relate.

Right.

Now how does that latter event happen so long as the government maintains control of the quantity via some mechanism and can compel the payment of taxes in that currency?

What causes that event is a belief among the people in the nation that quantity will become unlimited.

Thus, the risk lies in a change in the law, which is what I've pointed out time and time again. That risk today is effectively null because the law prohibits what would have to happen for that risk to become realized.

Should the law change then this risk becomes very real. But you have a marker on the event, and thus a way to delineate the risk.

you say they cant legally do this, but that has not stopped them from doing that as of yet... even from your quote you carry:

"QE2 - The largest tax ever levied on The entire world - and entirely illegal."

I am not saying that hyperinflation will happen, but I believe it is more of a risk than you give it.

OK.

If they solve the fiscal cliff/deficit problem then I'm sure the confidence of the people,
and those in other countries,
will be restored.

The chinese owned treasuries are something they can never sell as it will **** up their balance of payments and destroy their manufacturing base when the Yuan appreciates. Those treasury bills sit on top of a self-destruct button for China.

The funny thing is if Karl was treasury secretary for a day and rolled that $1T in treasuries into a big doobie full of medicinal weed and smoked it, the chinese would have to buy some more tomorrow.

In this whole global financial charade we are not the only ones trying to conjure up GDP growth for political ambition.

Karl said:

Quote:

Shredding the Treasuries would present an amusing paradox; many would argue it would cause an immediate hyperinflation. Nope. It would do exactly the opposite; the dollar would get MUCH stronger. Why? Because you're destroying circulating credit which makes it MORE SCARCE! And the funny part of it is that any nation that tried to counter it by "dumping" their Treasuries would simply feed into it, because we could always do it again, and again.

then Bertdilbert said:

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Karl, I don't think the world markets would appreciate tearing up Chinese treasuries. The reason treasuries have value is because they are considered safe. If you act in a manner that suddenly throw them into the maybe not safe category, it would negatively reflect in the demand and value of treasuries.

This is an interesting paradox. If you are a third country or individual and Karl is right then you want the US to get mad at someone, anyone other than you, and shred their Treasuries. Why? Becuase that would make yours more valuable.

Unless of course it is more like Bert said and the "security" factor plays a big role in the use of Treasuries. In that case, it is like nuking all your creditors if you shred any Treasuries. Of course, that then means that you have nova-bombed your ability to deficit spend. Hey, that might not be such a bad idea after all...

Flap

"What causes that event is a belief among the people in the nation that quantity will become unlimited."

Isn't that what most people believe, QE to infinitiy?

What else would one believe when they keep seeing the debt limit being increased? They keep hearing that there will not be any cuts to social security or medicare. They keep seeing "necessary" bailouts. Talk of a balanced budget now seems to be a wacko idea because it will damage the fragile economy. I don't see how anyone would not believe that the quantity will become unlimited. Most people just don't want to consider the real consequences so they just continue to ignore it and act like it will all work itself out and somehow someone else will suffer the pain. It's all a confidence game. Once that confidence is lost, it all starts to crumble very quickly.

The only "HYPER" we're going to have is hyper-DEFLATION!

It's just math. Everything must collapse. Nothing has changed except more fake money created out of thin air to prop up an already broken, and - what should be by now - DISCREDITED (no pun) system!

I think you’re a bit quick to have a go at Schiff here Karl. It wasn’t a skewering, it was a reasonable discussion with Lauren playing devil’s advocate and Schiff was quite coherent.

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Hyperinflation is extremely difficult to have occur so long as the currency remains debt-backed.

Sorry Karl but that’s not true. Hyperinflation is a result of a complete loss of confidence in a currency, whether it is backed by debt, gold or pixie dust.

There have been plenty of hyperinflationary episodes involving debt-based fiat currencies; hyperinflation is political and it can take but one move to kick it off. In fact there is usually a single event trigger for it to occur. You normally don’t see it coming either, it is not something you can reliably predict because it is purely behavioural.

Now on the call for deflation. Yeah, in theory deflation should be the result. However inflation disproportionately benefits the ruling and banking classes. They will do everything in their power to maintain inflation and avoid deflation, including sharp one-off devaluations if that is necessary. Granted this is a collapse scenario, but that’s what we are talking about here. Other triggers may be a default or significantly ramped up printing to finance the deficit spending: you know the maths on that one Karl.

That’s how a hyperinflationary currency collapse can occur when theoretically a deflationary episode should be happening; it is a policy intervention in the currency that causes a complete loss of confidence virtually overnight.

Will the US see hyperinflation? IMO no, we go to war well before that happens. So I don’t think Schiff is correct on that, but I agree that there has been plenty of inflation already in various asset classes and much of it was exported thanks to the reserve currency and inflation continues to occur. But inflation and hyperinflation are two different animals in any case.

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That risk today is effectively null because the law prohibits what would have to happen for that risk to become realized.

I cant believe you actually wrote this after everything that has been going on. When not even the Constitution is upheld how can you hold up the rule of law as reducing a risk to zero??

The risk is remote, but it is NOT zero. The risk of a change in law is real and must be taken into account when assessing a forward-looking risk horizon. It wouldn’t be a sure-fire marker either, just an indicator. As I previously stated hyperinflation isn’t reliably predictable.

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Japan might have lost two decades of GDP growth but unemployment is only 4.5%.

Yes but some of these jobs are things like, directing traffic in parking lots, and welcoming greeters at mall entrances. I don't know if that really matters or what it means for the economy though.

Hyperinflation is a government printing un-backed money to fund its day to day operations with a currency people are dumping. That's why it is always a government scam, and the system currently in place in the U.S. is specifically designed to prevent this from happening.

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Hyperinflation is a government printing un-backed money to fund its day to day operations with a currency people are dumping. That's why it is always a government scam, and the system currently in place in the U.S. is specifically designed to prevent this from happening.

OK, Flyanddive, that makes sense. The ``currency people are dumping'' part matches up to my definition of a hyperinflation. The ``government printing'' part is how we usually get to the ``currency people are dumping'' part. It's certainly not the only way to get there, but that's the road we are moving down today.

I agree that the banksters are going to do everything in their power to keep their money-printing monopoly. If we start dumping their currency, their monopoly is worthless. I can envision foreign affairs providing a trigger to get us all started dumping the dollar. In other words, there is a small but non-zero probability that some external event will break that system, with disastrous results.

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I don't anticipate we'll ever see a 4% 10 year bond again

I'll take the other side of that bet (and win) TMD!

Sean,

What's your time frame? We might need a ticker forum escrow fund.

Sean - do the math. There is no way we can service the debt if the interest rate goes there. And as the prettiest turd in the punch bowl we'll be the last. And by that time everyone will have it figured out.

I don't doubt we might see 4 percent but it won't last. We'll fly right thru 4 on the way to default.

Karl, you say that QE has caused the TNX to climb. Huh? What is it those silly things pay today 1.63%? Did the rate climb at the inception of QE2, the Fed's big T-note buying spree? Overall, I would say that ZIRP and QE has flat killed the goose. I mean seriously, would you view the risk adjusted return on bucky is 1.63%??? I am not trying to be vexing, I just don't understand your point.

I used to listen to Schiff's radio show way back when he was broadcasting out of his den. He has some intelligent stuff to say but the constant goldbug drumbeat got tiresome after a while. His USD short predictions in 2008 was disastrous.

Oh, and his investment advice on avoiding the financial apocalypse was to put the rest of your money in Europe.