Reply #46: The Four Scenarios - Debt Deflation, Hyperinflation, Quadrillion Play and Muddle Through [View All]

[Octafish]

Heh. Yeah. My way of looking at it is that We the People have been left holding something worse than an empty bag -- We now own the responsibility for a bag filled with IOUs.

The Four Scenarios:
Debt Deflation, Hyperinflation, Quadrillion Play and Muddle Through

London, UK - 15th November 2008, 07:50 GMT

Dear ATCA Open & Philanthropia Friends

(Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.}

SNIP...

Whilst the fear is that we may be heading for Scenario 1 and the way to avoid it is via a benign form of Scenario 2 coupled with Scenario 4, it may be important to ask, what if, Scenario 2 has already happened and the Weimar Republic's printing of money is manifest in this broadband internet and high performance computing age, via the complex securities and instruments that private financial institutions created and sold between 1995 and 2007. This has been manifest via the invisible Quadrillion dollar derivatives equation and the associated hundred trillion dollar plus debt securitisation pyramid. Banks and brokers were, in effect, printing their own proprietary issues of "money" via complex securities and as a result their supply of money grew to exceed by at least one order of magnitude the money printed by central banks. Central banks failed to recognise this phenomenon and continued to focus on monetary growth and money velocity utilising old metrics rather than acknowledging the wider spectrum of public (central bank / government) and private money taken together. How could the central banks possibly fail to recognise this new phenomenon while securitisation and derivatives, the tools of liquidity creation, were a central obsession of the financial industry? In fact, the central banks played along, humming the mantras of privatisation and deregulation.

These quadrillion dollar worth private currencies -- paper assets -- have fuelled the globalisation process, massive and unprecedented world GDP growth, mergers and acquisitions, and large scale industrial / infrastructure projects, until natural boundary conditions kicked in, ie, the earth ran out of raw materials and natural resources in sufficient quantities. Scenario 1 started as commodity prices -- food, fuel and raw materials -- went into hyper drive to trigger the catastrophic demand collapse we are now witnessing. Now what we may be heading towards is in fact Scenarios 3 or 4, which are post the Weimar Republic's hyperinflation manifest in most assets' pricing and Scenario 1, which is yet to play its full course. In a nutshell, "1923" already happened up until "2007", "1929" happened in 2008, and the 1930s equivalent is now unfolding. Given that the Great Unwind is happening near the speed of light because of the internet, mobile and satellite communications, as well as high performance computing, it is possible to move to Scenarios 3 or 4 and out of Scenario 1, much faster than was practicable before World War II.

In parallel, the central bankers would like us to believe that they have been and are still in charge because they can print fiat currency at will and set monetary policy at near zero rates if they like. This is governance by magic. What if they can no longer exercise sufficient control and have become co-dependent on the parallel printers of money -- manifest as paper assets -- which happen to be the private financial institutions? What if the central bankers and regulatory authorities are encumbered by what the private financial institutions have done during 1995 and 2007, during which time the policing of the global financial system was inadequate and cross-border arbitrage opportunities exploded? This may mean that we are still living within a myth that central bankers can resolve the mess in the real economy and actually they can't because the paper fuelling the real economy was not issued by them and large quantities of it resides off-balance sheet in a non-transparent way. Yet, the central banks have to mop up the ongoing toxic liabilities and black holes, which may or may not be possible ad infinitum given the unprecedented scale of this challenge. The quantum of asset price deflation underway post the collapse of the Weimar Republic type Quadrillion dollar paper asset bubble is so large that all the kings horses and all the kings men may not be able to put Humpty Dumpty together again. The power of central bankers may have been permanently eroded given that the centre of gravity has now shifted. It lies with the financial markets and their participators who transact the deflating quadrillion dollar plus paper asset equation of which fiat currency is a much smaller quantum.

CONTINUED...

http://www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/cgi/mi2g/press/151108.php

These evil turds are smart. Good thing for us, the majority of We the People are Good.

Thank you for the excellent links, judasdisney. Perhaps our economy will be, eh, transformed into something of real value -- what makes life better for ALL Americans, not just those with the means to hire a CPA and tax attorney or buy a Congress and White House.