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Financial writer John Rubino says everywhere you look, debt is exponentially mounting. Nothing demonstrates the “imminent bankruptcy” problem better than the financial obligations of New York City. Rubino says, “They just announced that they have unfunded liabilities for retiree healthcare, just retiree healthcare and not the rest of their pensions, of $100 billion. That’s for a city, not a state or a country, and if you add their unfunded liabilities for their pensions, which is another $50 billion or so, and their official debt, which is $50 billion or so, you get $200 billion that New York City is on the hook for that they have not put money away for. If a private sector company had finances like that, they would be insolvent, and their accountants would force them to say that.”You can tell the same story for cities, states and countries around the world swimming in unrepayable debt. So, what will be done when bond defaults and financial failures begin? Will Trump let it go like the failed debt of Puerto Rico or have massive bailouts? Rubino says, “It’s possible that Trump will teach that lesson to the system, but I think the numbers are so big now the risk of a 1930’s style depression, or a Weimar Germany hyperinflation, is so great these guys are going to be terrified of anything that seems to be destabilizing. The pressure on whoever is in charge of the central bank or federal government is going to be to try to nip crises in the bud before they can really get going when you don’t know what is going to happen. For instance, New York City goes bankrupt, and that pulls down Chicago, and then that pulls down California. What does that mean? Nobody knows, and nobody wants to find out.”

…click on the above link to read the rest of the article…

Zimbabwe spirals into economic chaos as fears of another round of hyperinflation begin to spark

October 12, 2018

Zimbabwe spirals into economic chaos as fears of another round of hyperinflation begin to spark

Zimbabwe has a history of economic chaos and misery. In 2008, Zimbabwe had the second-highest incidence of hyperinflation in recorded history. The estimated inflation rate from November 2008 was 79,600,000,000%.

Currently, citizens of Zimbabwe are stocking up on essentials such as bread, beef, cooking oil and other necessities in anticipation of a looming economic disaster. It has reached a point where certain items are beginning to be rationed such as bottled water and beer.

In addition to the panic buying when it comes to food, the country has been running out of essential medical supplies as the country’s health system seems to be on the verge of a complete collapse.

Since 2008 the country has relied on US dollars to conduct daily transactions. However, today the country faces foreign-currency shortages and a mountain of debt which many fear could spark the type of collapse that took place a decade ago when hyperinflation left the country devastated.

With a lack of supply of foreign currency, the citizens of Zimbabwe have been forced to use a currency called bond notes, bank cards and mobile money which are all beginning to deteriorate against the US dollar on the black market.

With soaring US dollar rates on the black market, businesses in Zimbabwe are having a hard time restocking inventory, which is even forcing some businesses to close.

“The parallel market is unsustainably high and has decimated confidence. Prices have been going up while margins are eroded,” Denford Mutashu, president of the Retailers Association of Zimbabwe, said.

On Wednesday, finance and economic development Minister Prof Mthuli Ncube attempted to reassure the public that their money would be safe in the banks, saying a legal instrument would be put in place to ensure that the government does not raid their accounts like it did in 2008.

Let’s hope history does not repeat itself for the sake of Zimbabwe.

Zimbabweans protesting the hyper-inflation that turned them into “starving billionaires”

Clinging to Old Theories of Inflation

September 15, 2018

Clinging to Old Theories of Inflation

QUESTION: Mr. Armstrong, I think I am starting to understand your view of inflation. It is very complex. I think some people cannot think beyond a simple one dimension concept as you often say. So I am trying to be more dynamic in my thinking process. Here you point out that when debt is collateral it is the same as printing money but worse because it pays interest. Then you point out that hyperinflation takes place not because of printing money but because a collapse in confidence and people then hoard their wealth which reduces the economic output and that compels a government to print more to cover expenses. So there is a line that is crossed and kicks in that collapse in confidence as in Venezuela. This is very interesting but complex. Is this a fair statement?

ANSWER: You are doing very well. You are correct. Some people cannot get beyond an increase in money supply is automatically inflationary one-dimensional thinking. If that was true, then why did 10 years of Quantitative Easing by the ECB fail completely to create inflation given that theory? It is like brainwashing kids with global warming ignoring all evidence to the contrary.

There is yet another dimension that you have to add to this complexity. The BULK of the money is actually created by the banks in leveraged lending. If I lent you $100 and you signed a note that you would repay it, then the note becomes my asset on my balance sheet. I can take that to a bank and borrow on my account receivables. In this instance, just you and I are creating money. Now let a bank stand between us.

…click on the above link to read the rest of the article…

Apocalypse, Or Not?

September 7, 2018

Apocalypse, Or Not?

Members of the American libertarian movement, particularly extremist preppers, are often associated with a belief that a complete breakdown in society is the only outcome from government economic policies and will lead to complete social disintegration. At the centre of their concerns is monetary destruction, with other issues, such as the erosion of personal freedom and the right to bear arms, important but peripheral. They cite history, particularly the hyperinflationary collapses, from Rome to Zimbabwe, and now Venezuela. They draw on Austrian economic theory, which fans their dislike of government and their expectation of total chaos.

Properly reasoned economic theory certainly reduces the science to one of black and white conclusions, which suits conclusion-jumpers. But the whole point of it is to explain society’s errors, so that they may be corrected. It is only by understanding the errors of state intervention and socialism, both communistic and fascist, that solutions can be found. Solutions then need to be applied, not taken into a mountain or forest retreat never to be implemented.

The real world does not work on black and white economic theories. It progresses along a muddled course, torn between statist mistakes and society’s unending patience with government intervention. Governments are the source of all wars and wealth destruction, but societies tolerate them. Philosophers have argued over this from Plato versus Aristotle onwards, and we are still here, two and a half millennia later, chewing over the same bones.

History records our philosophical chewing, and Man’s continuing conflict with and tolerances of the state. It records the rise and fall of kings, emperors, dictators and governments. Hermits and other preppers come and go, either unrecorded or, like Saint Simeon Stylites, noted as little more than historical footnotes. To future generations, prepping will almost certainly be a bygone curiosity, and humanity will continue despite government suppression.

…click on the above link to read the rest of the article…

Paper money eventually returns to its intrinsic value – zero

September 5, 2018

Paper money eventually returns to its intrinsic value – zero

In socialist Venezuela, the price of a cup of coffee has doubled every few weeks. The annual inflation rate could hit 1,000,000 percent by years end. People can no longer afford food, but that’s okay because there isn’t any food to be found. South America’s once wealthy nation has spiraled from secure and stable into an unimaginable state of hyperinflation. Venezuela is experiencing the results of government mismanagement, corruption, and socialist ideology. President Maduro’s solution to the problem is to proudly lob three zeros off the hyperinflated Bolivar and call it a “miracle solution.”

View image on Twitter

Venezuela

Before hyperinflation vs NOW!

1:51 PM – Sep 2, 2018

At one time, Venezuela had the largest oil reserves in the world, which provided steady revenues for the country and a good living for its citizens. Oil accounted for most of Venezuela’s exports. Life in Venezuela was excellent. Then, in 1998, came President Hugo Chavez. Chavez used the abundant income stream to go on a spending spree as he instituted a large number of entitlement programs using the oil revenues. A strike in 2003 interrupted Chavez’s plans and caused the GDP to crash by 27 percent in just four months. Chavez began nationalizing industries and instituting price controls, which was the beginning on Venezuela’s inflationary spiral as Venezuelans developed a reliance on their government for products and services.

The price of crude oil plummeted in 2014, and the economy shrank by 30 percent. Oil revenues, in the form of U.S. dollars, were dwindling, and Venezuela was unable to continue importing necessary goods. These days, in 2018, stores are empty as people attempt to survive on dealing through the black market.

Venezuela is printing currency at the speed of a copy machine. The more money that is injected into circulation, the more it becomes devalued.

…click on the above link to read the rest of the article…

Argentine President Admits “More Poverty” To Come, Announces Price Controls, Higher Taxes, Smaller Govt

September 3, 2018

Argentine President Admits “More Poverty” To Come, Announces Price Controls, Higher Taxes, Smaller Govt

Things have not worked out so well since The IMF “bailed them out”…

In his address, there was good news, bad news, and ugly news.

“Everyone has to make sacrifices,” Macri implored of his nation’s citizens – who have lost 50% of their wealth year-to-date due to the collapse of the peso, which he also attributes to being “exaggerated by Turkey and Brazil weakness.”

Having blamed “mostly external factors” for the collapse of the economy (not bingeing on too much dollar-denominated debt in order to manufacture a smoke-and-mirrors-based boom), Macri notes that investors “have started doubting” Argentina’s ability to function.

The Good News

Macri has promised to dramatically shrink the size of the government, eliminating several ministries entirely, adding that Argentina must “set a goal not to spend more than we have.”

The Bad News

In an effort to close its budget gap, Macri will raise taxes on its one positive economic attribute – its exporters.

The Ugly News

Amid the hyperinflationary regime shift that is occurring, Macri will resort to price controls of some essential foods. When has that ever ended well.

All of which, as Bloomberg notes, is intended to signal a shift in the government’s strategy as it heads into talks on Tuesday with the International Monetary Fund to speed up the disbursement of cash from a $50 billion credit line.

Macri is now caught between the ‘rock’ of pleasing investors by cutting spending, and the ‘hard place’ of ensuring that the belt-tightening of austerity doesn’t cause social upheaval ahead of next year’s election.

These measures, Macri warned “will lead to more poverty.”

For now, the peso is stable (modestly weaker)…

Friedman On Inflation, Hanke on Hyperinflation

September 1, 2018

Friedman On Inflation, Hanke on Hyperinflation

In 1966, Milton Friedman wrote, as he often did, some memorable lines that have entered the lexicon of economic quotables. As Friedman correctly put it in a book chapter titled “What Price Guideposts?”: “Inflation is always and everywhere a monetary phenomenon, resulting from and accompanied by a rise in the quantity of money relative to output…. It follows that the only effective way to stop inflation is to restrain the rate of growth of the quantity of money.”

While true, Friedman’s classic statement doesn’t tell us anything about what drives the growth of the money supply that fuels inflation. The importance of this omission becomes particularly important in hyperinflations, when the monthly inflation rate exceeds 50% for thirty consecutive days. Hyperinflations are rather rare. There have only been 58 episodes of hyperinflation in recorded history. The first episode occurred in France, where the mandat collapsed. In August 1796, France’s monthly inflation rate peaked at 304%. Today, there is only one hyperinflation, Venezuela’s. I measure both Venezuela’s monthly and annual rate of inflation with high-frequency data each day. On August 27th, Venezuela’s monthly rate of inflation was 177% and its annual rate of inflation was 60,934%.

Many people ask, how can this be? What drives the money supply and inflation to astronomical heights? To answer these questions, we must go behind Friedman’s heavily quoted words.

In hyperinflations, the “printing presses” go into overdrive because governments spend, and all the sources for funding their largess either never existed or wither away, except one: central banks. To set the stage, in a pre-hyperinflation situation, when a full array of financing options are available, government expenditures can be financed by taxes, by the domestic and international bond markets, by revenue from state-owned enterprises, and by central banks. In addition, governments can defer payments by accumulating arrears. So, arrears are also a means of “funding.” Governments can also go hat-in-hand to obtain foreign aid, yet another source of funding.

…click on the above link to read the rest of the article…

“What A Disaster”: Chaos Returns To Venezuela One Day After Massive Devaluation

August 23, 2018

“What A Disaster”: Chaos Returns To Venezuela One Day After Massive Devaluation

Just one day after Venezuela’s historic currency devaluation, which lopped off 5 zeros from the currency and prices while bizarrely pegging the “sovereign Bolivar” – the country’s latest currency incarnation – to the petro, an oil-backed cryptocurrency (which has been banned by the US Treasury), chaos has predictably returned to the country with the greatest petroleum deposits in the world…. and hyperinflation failed to depart for even one day.

That what Henrique Rosales discovered when he went to an ATM on Tuesday – the day after Venezuela’s historic currency transformation took place – to withdraw Venezuela’s new currency: he found it dispensed a maximum of 10 sovereign bolivars a day, the equivalent of 15 U.S. cents.

“This money is going to disappear out of my hands in no time,” said the 29-year-old waiter, who told the Wall Street Journal he hasn’t seen cash in five months. He hasn’t been able to pay for bus fare and walks several miles a day from his hilltop slum to the seafood eatery where he works.

“I’m realizing the government has no plan to get us out of this nightmare. What a disaster.”

Rosales’ reaction was predictable (we previewed the chaos that lay in store for the Latin American socialist paradise over the weekend): he is among the many Venezuelans swept by confusion and anger as the government of President Nicolás Maduro rolled out its latest economic overhaul as part of its struggle to keep up with the world’s greatest hyperinflation, surpassing even that of the Weimar Republic.

Maduro called the measures “a really impressive magical formula” intended to stabilize the economy, including a new, highly devalued currency as well as tax and wage increases.

…click on the above link to read the rest of the article…

Venezuela In Chaos After Maduro Announces Massive 95% Devaluation, New FX Rate Tied To Cryptocurrency

August 19, 2018

Venezuela In Chaos After Maduro Announces Massive 95% Devaluation, New FX Rate Tied To Cryptocurrency

Chaos and confusion erupted across Venezuela, and most stores were shuttered on Saturday, after president Nicolas Maduro announced that the government would enact a massive currency devaluation, implement a new minimum wage, hike taxes, and also raise gasoline prices for most citizens even as the country struggles with the greatest hyperinflation on record, surpassing even that of the Weimar Republic.

As a result of the enacted actions, the new version of the bolivar will be pegged to the value of the state cryptocurrency, the etro, which according to Bloomberg amounts to a 95% devaluation of the official rate, and will trade in line with where the black market was; the government will also raise the minimum wage more than 3,000 percent, which works out to about $30 a month.

Maduro said the new currency, set to enter circulation on Monday, will be called the “sovereign bolivar” and will be based on the petro, which is valued at $60 or 3,600 sovereign bolivars, after the redenomination planned for August 20 slashes five zeroes off the national currency. The minimum wage will be set at half that, 1,800 sovereign bolivars. The government would cover the minimum wage increase at small and medium-size companies for 90 days, Maduro added. It was not clear what happens after.

“They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices,” Maduro explained in a Friday televised address. “We are going to convert the petro into the reference that pegs the entire economy’s movements.”

In other words, for the first time ever, an oil-linked cryptocurrency effectively replaces the sovereign currency. As a result the petro, which will fluctuate dramatically, will be used to set prices for goods. The package of measures combine the necessary with the baffling, Luis Vicente Leon, president of the Caracas-based pollster Datanalisis, said in a Twitter post on Friday.

…click on the above link to read the rest of the article…

Hyperinflation Has Destroyed Venezuela

August 16, 2018

Hyperinflation Has Destroyed Venezuela

Has coffee become an unattainable luxury? It is if you live in Venezuela’s capital of Caracas. In July, the price of a cup of coffee was 2 million bolivars. In a country where the minimum wage has been raised to 3 million bolivars, coffee has become as unaffordable as food, housing, clothing, and medicine.

Venezuela is in crisis mode. Ninety percent of citizens live in poverty conditions. Most of them have lost up to 25 pounds due to lack of food. Call it the Maduro Quick Weight-Loss Plan. President Maduro, who has blamed everything but his own socialist policies for the economic disaster, points out that he has raised the minimum wage to 3 million bolivars. For Venezuelans, this is utterly meaningless when prices are doubling every 18 days. Economists predict that hyperinflation will hit an unprecedented 1,000,000 percent by the end of the year. The Bolivar can be officially considered without value.

It is easy to forget that just a few decades ago, Venezuela was one of the richest countries in South America. It had the world’s largest oil reserves and plenty of gold. Along came President Chavez and his populist policies and schemes to retribute the wealth. Following years of overspending and inflation, his successor, President Maduro, has continued those policies, except there is no more wealth left to distribute. In a recent election many consider rife with fraud, Maduro’s win has ensured six more years of hellish disaster for Venezuela. He has announced that he intends to fight hyperinflation by removing five zeroes from the bolivar. His announcement did not include an explanation of how devaluating the valueless Bolivar, even more, will help the country.

Venezuela has gone beyond an economic disaster and is now in a humanitarian crisis. Without food or medicine, the country won’t be able to survive. At this time, it is being propped up by Russian and Chinese aid.

…click on the above link to read the rest of the article…

Depression then Hyperinflation Coming – Charles Nenner

July 21, 2018

Depression then Hyperinflation Coming – Charles Nenner

Renowned geopolitical and financial cycle expert Charles Nenner says don’t believe the Federal Reserve when it says it expects “the strong performance of the economy will continue.” According to Nenner, it’s about to go the other way—down. Nenner explains, “Definitely, later this year, the interest rates are going lower, and it could be much lower. We did work on all kinds of economic indicators. Employment is not going to be as good anymore as they say. Inflation is not going to be as strong as they expect. The commodity index is breaking down. Copper cycles are down. Crude oil cycles are down. Soon, everybody is going to wake up again and say hey, what’s going on? It is very interesting how Wall Street is approaching all the indicators. . . . If you do your homework, everything actually looks like the economy is weakening.”

How bad is this financial cycle going to get? Nenner is not afraid to use the “D” word. Nenner contends, “Still, the Fed talks like this could continue forever, and it’s the longest expansion. So, why do you think this time is going to be different? If you start with this low of GDP and interest rates and then you get to recession or depression, then you definitely get into at least disinflation.”

So, does Nenner see an actual depression coming soon? Nenner says, “Yeah, I have been saying that for many years. . . . Yes, if you look at the . . . long term cycles. Yes, we are going to a hyperinflation, but first, we are going to have a deflation scare. . . . We have one more scare of deflation before we get into real big inflation problems. It is a matter of timing. So, it could be a couple of years away.”

…click on the above link to read the rest of the article…

Hyperinflation Avoidance Advice for Turkish Citizens as Fitch Cuts Ratings

July 16, 2018

Hyperinflation Avoidance Advice for Turkish Citizens as Fitch Cuts Ratings

Turkey is on a path towards hyperinflation. Here are the steps Turkish citizens should make ASAP.

Citing stability risks, Fitch Cuts Turkey’s Credit Rating to BB, further into junk territory.

Risks to macroeconomic stability have intensified owing to the widening in the current account deficit, more challenging global external financing environment, jump in inflation and the impact of the plunge in the exchange rate on the private sector: Fitch
Economic policy credibility has deteriorated in recent months and initial policy actions following elections in June have heightened uncertainty, the rating agency said in a statement
Fitch expects CAD to widen to 6.1% of GDP in 2018, driven by higher fuel prices, and in 1H, higher household consumption
Fitch forecasts annual average inflation to be more than double the current BB range median, at 13% in 2018 and 10.8% in 2019
Outlook on the rating is negative

Heading for Hyperinflation

Turkey isn’t close to hyperinflation yet. But the path it’s on is a guaranteed way to get there.

Turkey on Venezuela’s Path

Erdogan jailed political opponents
Parliament effectively made Erdogan prime minister for life
Erdogan took over the press
Erdogan took over the courts
Erdogan took over finance
Erdogan about to take over the central bank

Hyperinflation Nearly Inevitable

Venezuela did not hop straight into hyperinflation and Turkey likely won’t either.

However, if Turkey remains on the same path, which seems highly likely, hyperinflation is the inevitable outcome.

Lira

Advice for Turkish Citizens

Prepare for hyperinflation
Get your money out of Turkish banks ASAP
Convert all existing savings into a basket of US dollars, gold and silver.
Borrow as much Turkish Lira as you can
Invest it in a basket of US dollars, Gold, and Silver

Hyperinflation is complete loss of faith in currency. It’s inevitably starts off as a series of political as opposed to monetary events.

…click on the above link to read the rest of the article…

Civil Unrest = Hoarding of Assets

June 28, 2018

Civil Unrest = Hoarding of Assets

QUESTION: Mr. Armstrong; You pick themes that are not really just political on the surface, but beneath you are connecting the dots economically. This is what I read between the lines for you do not always emphasize it in every post why you will address issues like migration and civil unrest. Are these serious issues to the economic backdrop?

ANSWER: Oh yes. Perhaps I just understand that is the backdrop so I do not openly restate it because it is obvious to me. Not a very good communication tactic on my part. To explicitly state this, when the economy turns downward, people will then blame migrants. Today, they label this as racist. That is simply not true. It really has nothing to do with race or religion. We saw civil unrest turn to violence during the 1840s when there was a wholesale State level Sovereign Debt Crisis in the United States. That was against the Irish who were the same race, but were at least Catholics that the Protestants did not like back in Europe.

During such period of civil unrest, capital contracts and begins to hoard. This is what caused the German Hyperinflation for that was a 1918 Communist Revolution which overthrew the German Emperor. We also find hoards of ancient coins from periods of economic stress. The 3rd century AD is when we have the most hoards, but they tend to cluster also around civil unrest and civil wars. If people are fearful or uncertain about the future, they do NOT spend and they contract. So the global trend I am highlighting with respect to rising civil unrest is important economically. The fact that this trend is WORLDWIDE, is particularly alarming for it further supports the fact that we are in the Sixth Wave and 2032 will be the generational change of monumental proportions.

…click on the above link to read the rest of the article…

Venezuela’s Episode of Hyperinflation Reaches New “Highs” – Prices Double Every 17.5 Days

May 20, 2018

Venezuela’s Episode of Hyperinflation Reaches New “Highs” – Prices Double Every 17.5 Days

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar. As long as there is an active black-market (read: free market) for currency and the data are available, changes in the black-market exchange rate can be reliably transformed into accurate estimates of countrywide inflation rates—if the annual inflation rates exceed 25%. The economic principle of Purchasing Power Parity (PPP) allows for this transformation.

Using this principle, I compute implied annual inflation rates using high-frequency data and report them on a daily basis. For the countries that I monitor daily, the table below shows the annual rates for the eight countries with the highest inflation rates in the world.

At present, Venezuela is suffering from hyperinflation. It holds down the top spot on my list, with an annual inflation rate of 16,428%. Note that my measurement of the implied inflation rate is much higher than the widely reported International Monetary Fund’s (IMF) end-of-year forecast of 12,870% (13,000% rounded). I measure; the IMF foolishly forecasts. A comparison of my measurements with the IMF’s projections for the other seven countries’ year-end annual inflation rates shows that the IMF’s projections are way off the mark. Indeed, my current measured inflation rates for “today” exceed those that the IMF projects, with the exception of South Sudan’s, by a wide margin. Given these large divergences and the IMF’s poor record of forecasting inflation in countries experiencing elevated inflation rates, one wonders why the financial press reports the IMF forecasts, and why it does so with such reverence.

…click on the above link to read the rest of the article…

Everything You Need to Know About Inflation

April 30, 2018

Everything You Need to Know About Inflation

It’s been said that when the U.S. sneezes the rest of the world catches a cold. Inflation by overall annual average has been below target for some years now, since 2012 to be exact. The Fed usually seeks a 2% inflation as a comfort zone.

Granted, it’s only one data point but with unemployment currently low and some signs that economic growth is accelerating, the suggestion exists that overheating/inflation is a risk for the U.S. economy in a way that hasn’t existed for about ten years.

What is inflation?

Inflation is when the buying power of a currency declines over time. If inflation is 2% that translates to a basket of groceries which cost $100 today costing $102 a year from now.

But since prices rise and fall and we each buy different articles how is that tracked? Government statisticians and economists create indexes to reflect a full range of products and services that are consumed weighted by how much the average household spends on each item.

Various ways of measuring are done by comparing the decline of the U.S. dollar compared to other currencies or to gold. The aggregate of the items compared can show how prices are changing over time considering the range of items the average household purchases

This leads to the next question, “is inflation good or bad?”

It can be either. In places like Venezuela today or Zimbabwe a few years ago, inflation was so out of control that the currency ceased to function as a means of exchange and the population was forced to resort to a barter system. This led to a breakdown in the two countries’ financial systems.

…click on the above link to read the rest of the article…

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