Prepare For Hyperinflation Part Two

September 27, 2010

by Linda Brady Traynham

(Editor’s Note: Linda left this great analysis as a comment today. I think it is so good that I’ve upgraded it to an article. Dadgum Linda makes analysis look easy…I have to work at it. I created the title…is that OK, Linda?)

Inflation moves unevenly and isn’t precisely synonymous with “rising prices,” nor are all price increases the result of lessening value of currency. Price increases have been particularly sharp in the area of foodstuffs, this year, but we can look at the biggest increase–over 50%–in fresh fruit and vegetables and attribute it to crop losses due primarily to weather. Meat is up between ten and nearly twenty per cent., depending upon type, but in large part that can be attributed to sell-offs and increased slaughter from a year ago caused by drought and higher feed, energy, and other costs; there is less meat for sale at present. Currently coffee is at a twelve-year high, cocoa is edging higher again, and there is a strong possibility of a very painful hike in the cost of paper products, perhaps nearing 40%.

I do not really expect TRUE hyperinflation of at least double digits before we start seeing the effects of letting the Bush tax cuts lapse 1/1/11 and get another round of “quantitative easing,” written as QE, signifying that more money has come into circulation once Bernanke and friends clear the log jam at the banks. As I explained (very badly) above, much of the two and a half trillion Timmy and Benny have created out of electronic digits and running the printing presses has not actually gotten to street level. The “money” is tied up in government and banking circles, which is really better for us than it sounds. It may seem as though increased lending to private parties would be what will jumpstart the economy, but that’s not exactly what we need. Suppose banks start lending. To whom will they do so, for what purposes, and what are the chances that the borrowers can repay the banks? What is needed is expanding hiring which won’t come until businesses can see a stable economic situation and no more threats of increasing taxes and regulations.

Just as the true inflation rate is somewhere around 7.5%, the real jobless rate is on the order of 18% over all. Even if the “value” of houses has returned to realistic levels, would a house be a good place to invest money? Many of us expect another big drop because the true state of defaults, foreclosures, and payments in arrears is being hidden through accounting subterfuges. If a bank forecloses on a property, at least in theory it can’t count the value of a good loan on the plus side of the ledger any more; if the true state of affairs becomes common knowledge we’re going to see more bank failures and bank shares plummeting. There is a collapse lurking in the commercial real estate market, for the same reasons housing prices couldn’t be maintained. Construction proceeds busily, but over 20% of current units stand empty.

What about enlarging a factory and hiring more workers? Not a good idea when there are fewer customers and threats of higher taxes, regulations, and costs. In many cases a business that posts an EOQ profit will have done it with TARP money, reducing inventory, or cutting costs, primarily by firing workers.

Hyperinflation represents wild instability and lack of faith by citizens that the currency has constant value. I suspect that recent gains in the DOW represent the faction which is relying on the probability of massive losses by Congressional incumbants about six weeks from now, with a naive expectation of, “We’ll elect a bunch of businessmen and THEY will know what to do.” Sorry, Charlie, the house and Senate may swap majorities, but first we’ll have to get through three months of the current group working overtime to pass legislation. After that, the new group will discover the facts of life: even if they repeal a lot of unpopular legislation and freeze spending, the “off budget” portion is so far out of hand there is no practical way to correct it. At least, none that won’t lead to blood in the streets.

Congressional budgets–you are aware that Congress hasn’t even attempted to write one this year?!–are as realistic as if you “budgeted” your expenses without allowing for rent/mortgage, insurance of all sorts, and car payments. Those would be “off budget” because you have to pay them, a statement that makes sensible people shake our heads and exclaim, “What?!” Budgets are supposed to be about insuring that outgo doesn’t exceed income, not making a wish list and buying the items on it first.

The true tale of individual hopes and fears is far more likely to be told in a series of recent historical highs for gold and thirty-year highs for silver. Part of it is people buying stocks because nobody but a scared banker would settle for clearing 2% on an investment. Banks are figuring an actual loss of about that much is better than watching more loans go sour.

Throw in that Bernanke says he’s going to go for more QE next quarter, and we could see a situation where the best thing to do with money is spend it quickly. That doesn’t even factor in the Chinese and Russians buying yen, the shakey state of the bonds market, or the impact of the Greens and Obama on oil. Rigs are being pulled out of the Gulf at a rapid clip; they’re going to the area of the Indian ocean, and they won’t be back any time soon. Most of our areas with the highest probability of oil production have been locked up by government mandate, and if we aren’t allowed to produce oil we have no alternative other than buying it.

Businesses cannot plan from moment to moment. Ever since Obama took over we have seen one tax hike after another with constant threats of increased costs for energy–not just for business, but for individuals. It looks like the shoe just fell in Congress by failure to renew the Bush cuts, and Congress will start slipping off lots more shoes.

Democratic “leadership” wanted to foist socialized medicine on us badly enough to risk losing control of Congress. They have accepted the price and have nothing more to lose by pushing every leftist pipe dream through between now and the third week in January.

No matter what we call it or how we explain it the chances are high that your money will buy noticeably less by the middle of next year. In that context, I suggest that the best thing to do with your “excess” money is to exchange it for items of intrinsic worth that are durable and you have a genuine need for. The idea is to hold CURRENT value, with the secondary benefit of locking in current prices. Check government sales, too, as a way to judge conditions and expectations. I’m negotiating today for 3,077 concrete blocks…and the current bid is $250. Since they weigh about fifteen tons, I will have to get a very useful truckdriver we know to cart them from Ft. Worth, a couple of hundred miles away, and will probably end up with about $700 in them between purchase and transportation, and there are myriad uses for concrete blocks. Here is why this is of interest to you: the blocks are being offered by an ISD that has decided it can’t afford to build another school. Many states, cities, and counties are in the same condition of virtual bankruptcy the Feds are. We’re in a period where there are superb bargains in construction materials. New plywood can be purchased for 2/3 lumber store prices. In short, a lot of things are in flux.

The best solution I can come up with? Secession and punctuation. Disassociate ourselves from the messes caused by DC and statehouses, and adopt Constitutions that say, “Congress shall write no laws.”

How many times I have wondered, “Just when WILL we have enough laws?”


Linda Brady Traynham
The Texas Ring