Saturday, April 4, 2009

Hyperinflation and Depression

Jim Sinclair, who has over 50 years international experience in precious metals trading, and whose commentaries are linked at the left, offers the following thoughts:

1. All hyperinflations are currency events, not economic events.

2. All hyperinflations have occurred in what can be called deep deflationary depressions.

3. Quantitative Easing, the wanton printing of money, has been the key to all hyperinflations in history, no exceptions.

4. The recent example of Zimbabwe certainly occurred in the deepest economic doo-doo ever.

5. Don’t mix up hyperinflation with a deflationary business environment as mutually opposed when they are locked in step.

There are now hundreds of billions of dollars in money and credit newly created that are out there sloshing around and ready to move. Hardly anything can bring them back without creating a business downturn or making the present one much worse. So, despite the Fed's lip service to fighting inflation, it won't happen. The Fed has lost its independence from political objectives. We now have a politically driven, short sighted currency. And the politicians are ignoring the inevitable consequences of printing money to reward risky financial behavior, just as the long-term financial consequences of Social Security and Medicare have been ignored.

It would be baffling that they even ignore the timing of their own elections considering that things will be worse two, four and six years from now. But they are counting on demagoguery to pull them through the next election -- lies, scapegoats and demons will be found on which to shift the blame.

The clowns in Washington have no idea what they are doing. Run for cover.

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