By FITSNews || You thought the last three years have been rough? According to one economic analyst, you ain’t seen nothing yet …
The United States – and the world – is headed toward a “hyper-inflationary Great Depression” according to John Williams, who runs ShadowStats.com, a website that provides analysis of government economic reporting.
“You’re going to have negative economic growth this year,” Williams says. “The implications for that are extraordinary, because the projections on the federal budget deficit, a number of the state deficits, and the solvency and stress tests for the banking system all were structured assuming positive economic growth in the 2% to 3% range for 2010.”
Here’s another scary excerpt from Williams’ interview, which was published in the International Business Times:
There’s strong evidence that we’re going to see an intensified downturn ahead, but it won’t become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven’t seen probably in the history of the Republic.
Ruh-roh.
Of course this is what we’ve been saying ever since the start of this recession – that government’s excess interventionism under George W. Bush and Barack Obama was a recipe for a bigger economic collapse (not unlike how Herbert Hoover and FDR’s excess interventionism turned the first “Great Recession” into the “Great Depression”).
Williams says that hyper-inflation has been the “ultimate fate (of) the system for a number of years,” and that the government is understating its actual deficits by failing to include numbers based on “generally accepted accounting principles” (or GAAP) as well as unfunded entitlement obligations.
“If you look at those GAAP-based statements and include in the deficit the year-to-year change in the net present value of the unfunded liabilities for Social Security and Medicare, what you’ll find is that the annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009,” he says.
Williams also has some interesting thoughts on how the media is covering the “recovery.”
You are getting happy news from governments, central banks, financial markets, Wall Street analysts and the popular media, which does tend to cater to Wall Street. Such is standard practice. Happy news is what sells and you don’t want to discourage people. The Obama administration, interestingly, started talking-down the economy when it wanted to get its stimulus package in place. As soon as that was done, it started talking-up the economy. Everything was just fine and dandy again. This is the most extraordinary downturn most people living today have ever seen. In terms of modern economic reporting, which basically started after World War II, we’ve never had a downturn as long or as severe. Perversely, the extreme nature of the downturn actually has warped recent reporting of seasonally-adjusted data to the upside.
Translation?
Run for the hills, people …
WEB EXTRA
Shadow Stats
John Williams’ Interview
By countryboy May 7, 2010 at 9:22 am
BE RIGHT BACK. GOTTA GO BUYS SOME MORE AMMO (GUNS I HAVE)….
By James M. Strickland May 7, 2010 at 9:59 am
Fits,
I study economics, and the analyst who you just publicized seems to want a lot of attention. There are plenty of radical “academics” and “experts” out there who tell you the world will end. However, his predictions aren’t entirely coherent.
Fiat currencies have their problems; but if the dollar is worldwide and is propped up only by the trust we place in it, then nearly no one will be willing to let the dollar crash because then everyone loses out. It’s the universal currency that can’t be inflated now because everyone sees it as a universal currency, and consumes more of it. Only if everyone in the world lost all confidence in the dollar (but remained confident in other currencies [which isn't likely because so many currencies are either based on the dollar or are from weaker economies and suffer lower confidence]), then can there be a hyperinflation of the dollar. But otherwise, it’s a terribly long shot.
Deficit spending and national debt/entitlements are most certainly problems, but there’s no real reason to predict a dollar crash in light of the fact that everyone in the world has a stake in its survival.
By Brandon May 7, 2010 at 10:01 am
This according to “one” economist?
By ManWithoutaParty May 7, 2010 at 10:14 am
Why is the guy who composed all the music for Star Wars lending out financial advice? Shouldn’t John Williams focus on making satisfactory music for sub-par prequel-sequels?
By PandaChris May 7, 2010 at 10:31 am
What an f—ing idiot!
By Elmo May 7, 2010 at 11:04 am
James Strickland- I hope you didn’t pay very much for your economics lessons. Gold in 1973 was 35 bucks per ounce. Today it is around 1100 bucks per ounce. Gold didn’t rally, the dollar has lost its value- approx. 95% in the last 100 years. So much for your theory of the dollar not going down because everyone has a vested interest in it. Study previous bubbles for examples of things going down while everyone is invested in it – like the South Sea bubble, the Dutch tulip craze, the internet crash, or the recent real estate crash as examples of the herd mentality getting slaughtered.
Or check out a chart of the US Dollar Index to see how the dollar has gotten killed over the last decade. In 2000 you could go out for lunch for 5 bucks and buy a gallon of gas for a buck.Today the dollar has lost its buying power making us pay more at the pump. John Williams is very well respected in financial circles and his point of the US government making up statistics is well documented.Anyone on Social Security knows the government is lying about the real rate of inflation and has no plan to get out from under the heavy debt load it has created.
By PLW May 7, 2010 at 12:24 pm
Meh.. the CPI growth rate since the 1950s has been about 5-percent with a couple larger spikes in the 1970s and nothing to speak of since then. Yes, the price of gold has grown a little faster than that (closer to 10-percentish), but hyperinflation is whole ‘nother ball of wax. I’m going to need a little more than some dude’s word on it before I start buying canned goods, especially when that interview originated in some rag called “The Gold Report.”
And seriously, who is this “John Williams” guy? Check out the bio on Shadowstats. He’s no economist- he has an MBA.
By James M. Strickland May 7, 2010 at 12:27 pm
Elmo,
You’re correct that dollar prices related to commodities have drastically increased over the past 100 years. However, those prices are related purely to commodities, and not to other currencies, or to real wages- which when you examine the long-term patterns of those things, the dollar isn’t so inflated.
What I’m saying is that in the 1960s (before even the OPEC oil price hikes), Americans spent higher percentages of their incomes on oil than they do today. While prices have increased, so have wages, rents, dividends, et cetera. You’ve got to look at real adjusted prices, as opposed to inflation only in commodities.
Yes, the price of gold is now relatively high compared to its former price, but also back when it was $35/ounce (and that price was determined by a government price ceiling from the Bretton Woods Agreement), wages and other prices were highly depressed. We must compare the dollar to other currencies to determine its real value, when deciding if there will be a hyperinflation- because the dollar is so inherently tied to other wages, commodity prices are secondary since our wages adjust (although in the process, wealth is reallocated a little).
Bubbles, especially the ones you mentioned, are often caused by over-confidence in markets; but the dollar isn’t experiencing a similar situation.
By James M. Strickland May 7, 2010 at 12:30 pm
For clarificaton, it was actually illegal for Americans to own gold from 1933 to the 1970s. The $35/ounce price of gold was available only to foreign nations who wanted to trade their overseas dollars for gold. Nixon ended that agreement in 1971, and OPEC retaliated by quadrupling the price of oil.
By Elmo May 7, 2010 at 1:24 pm
I have a degree in economics yet I do not need to look at “real adjusted prices” to know inflation is rampant. How much has a SC teacher salary increased since 2000? Now compare that very modest increase to the jumps in gas, health care, tuition, and food and you can see inflation, which is a cruel tax on the middle class, is here in a big way. It is not hyper-inflation yet but I do not hear anyone stating that William’s numbers about the REAL US debt of 4 to 5 trillion per year are wrong. The US government intentionally distorts measures such as the CPI to pay smaller Social Security checks and it artificially lowers interest rates to pay a lower interest bill on the massive debt. John Williams tracks the real numbers and they ain’t pretty.
By WorkingTommyC May 7, 2010 at 2:11 pm
That is a worst case scenario, surely, but not beyond possibility.
At some point, there MUST be, there WILL be a correction. There’s too much currency representing way too little actual value. We’ll have a lot of small corrections or a few big ones or somewhere in-between but they will occur.
There IS a “bottoming out” effect which will limit the total damage–a level of trade and need for a currency that works will keep at least a minimal number of transactions occurring–but the dollar can again lose 95% of its current value. We’ll only call it HYPER-inflation if it happens quickly.
The Federal Reserve has managed to do it slowly over 100 years. Obama and the Dems and RINOs have their feet pressed firmly on the accelerator and show no sign of letting up anytime soon. We need to get off our duffs and get some fighting folks put into office. Other than that, all we can do is pray for the best and prepare for the worst.
By Billy Bob May 7, 2010 at 3:23 pm
Hmmm – for rampant inflation to happen, people have to BUY stuff enough to push up prices. More likely in today’s economy is DEFLATION which is actually a bigger problem and it is the one that worries me. We already see it in housing and other infrastructure costs as developers are bidding to get the few projects in the supply line. I have seen the cost of developing water and sewer systems drop by 25% or more over the last 15 months.
Foreign products (such as almost every non-durable we buy may well get priced out of our market, but since we ARE the world’s consumers, it’s likely not going to get to the hyperinflation level.
Granted, the Fed is putting a lot of bucks in the market BUT the demand for them is nil. That’s why you can’t get more than 30 basis points for investing in short-term CD’s.
By James M. Strickland May 7, 2010 at 3:57 pm
A large majority of American dollars are overseas, and China has actively engaged in lowering the value of its currency to make its exports more afforable abroad. It has done this via selling Yen for dollars, and stockpiling more dollars via buying American debt. If the dollar was to melt down, then the Chinese would suffer severe trade effects; but the Chinese government, and others that have recently began buying United States debt (like our Arab neighbors), won’t let that happen (because then their debt is worth nothing).
The wages of public employees (like school teachers) don’t fully represent market fluctuations in the values of currencies. (I’m assuming however, that teacher wages are not adjusted to a price index; which I don’t think they are.) Like I said with fuel, Americans spent more money on it in the 1960s than today (when adjusted for inflation), because their wages rose over time. Also, with food costs: in the 1950s, Americans spent nearly 20% of their incomes on food, compared to 9% of today’s income spent on food, on average. The opposite occured in health-care costs, however.
When we say that there’s “too much” money representing “too little” wealth, we’re making statements of relativity; and with a fiat currency, it’s all relative. The American dollar is the world’s reserve currency- it’s the most stable of the major currencies. Investors flock to it in times of crisis (like the dollar rallying now with Greece’s troubles). Because of the universality of the dollar, there’s only a very, very slim chance of hyperinflation. Prices usually collapse in the midst of most recessions/depressions, anyway.
By just another person May 7, 2010 at 9:52 pm
Sic,
I could respond to this article, but why bother. People before me beat me to it. Why did you waste the space to put this out there. This is a joke.
By flipnut May 8, 2010 at 1:27 am
James, you are using all the right words, but your missing the big picture. This isn’t an exam question It’s politics, and most often the correct economic action isn’t the politically viable one or the one that best for the economy, it’s the action no one has to vote for.
On one hand hyper inflation, let alone any inflation above 3% would suck. On the other hand, slamming the fed funds rate and discount rates to near zero, pumping the banking system full of money, and tossing out fiscal stimulus left and right has a side effect (after all you really can’t take money out of the system, just establish a new monetary base) inflation, and when a currency inflates, the real value of interest payments on fixed rate loans decreases. Our national debt is a fixed rate loan. Devaluing the dollar and inflation were all but public policy under the Bush admin, and Obama hasn’t changed course. Any variation of raising taxes or budget cuts is political death no matter how right it is. So the easiest option for our leaders to fix our debt is to let as much as possible inflate away.
As for the bubble in dollars, what do you think our banks are doing with all that money they are borrowing from the Fed if they are not lending it out? With our governments blessing, it’s being used to purchase US Treasury’s and the banks are keeping the spread. This carry trade pumps cash into the banks without another bailout package passing congress, and it helps hold down interest rates since interest rates in our economy are really based on treasury yields which move inverse to the price. What’s going to happen to treasury yields when the European debt crisis passes or the Fed is forced to raise rates. Demand for Treasurys will fall, yields will jump up, and the inflation train will be underway, next stop Lira Land.
By Liberty For Me May 8, 2010 at 11:38 am
“James” China and the Middle east have been buying gold by the boat load….Trade deficits will happen to China which for them will be a good sign.They will have the wealth to buy from the world and the world will not be able to buy from them.For China it will be a world wide yard sale.
“Billy Bob” Scarcity in product causes inflation.The price of vegtables has doubled in a year.Is that because everybody turned vegetarian??
“Several economists noted that the wholesale price report showed increasing costs at earlier stages of production. That could pressure companies to raise prices later this year. Crude goods prices, excluding food and energy, rose 6 percent in the last 12 months, the department said.But with unemployment high and credit tight, consumers’ spending power is crimped, limiting the ability of retailers and other firms to pass on the higher costs”
Watch out people…the shit WILL hit the fan.
By SnakeMD May 8, 2010 at 7:08 pm
Is the system going to reboot? Is this the “correction” you are talking about? Countryboy might have the right idea about buying ammo. Just remember Countryboy–you can’t have enough ammo. The only time you have too much is when your house is on fire!
By countryboy May 8, 2010 at 9:52 pm
Without going to the trouble of looking up Williams biography, it is obvious he lives in the USA or another free country. He would be shot in half the countries in the world for potentially creating an economic panic.
By political hack May 8, 2010 at 10:02 pm
If the system is to reboot, we will just take a page from the Germans and the weimar republic. Hjalmar Schacht just revalued the currency to hard assets such as mortgages and agricultural land. Just so happens the Feds could use Fannie Mae and Freddie Mac in this way, since they already own and guarantee 60% of all mortgages in the nation. They will just keep spending to keep the politicians and their minions in business, the welfare rolls being the lifeblood of their existence. And in case you don’t know how to read or haven’t been following politics, this is what is inherently evil about socialism and “equal justice.” There is only economic misery as every hard dollar worked for is slowly robbed blindly from you.
By southernmapart May 8, 2010 at 11:14 pm
James Strickland, I’m no economist, just an ol’ granny who has been around a while and can remember when … and I don’t pay attention to g’ment stats because bureaucrats are all liars.
Gasoline would have to be under $2 a gallon to cost me less of my earning capability than in the 60′s.
You can talk about “fiat” and “other currencies” all you want, but for me it comes down to what I can buy in equivalent time it takes me to earn fiat currency dollars. The spread is getting wider, in the negative.
Why? Because I’m being fee’d and taxed to the poorhouse, meaning that fees and taxes are taking a greater percentage of my income. Sales taxes, postage stamps, licenses required for everything, huge fees on utilities which didn’t exist back when …
Billy Bob, people do not have to buy stuff to allow inflation to hyperventilate. Nixon put us under price controls to stop inflation. Guess what? G’ment allowed commodities to increase price if there was a “shortage.” Then, we had shortages to develop in everything! Coffee went into shortage and the price went up about 10 times. All veggies went into shortage, and the price went up. Even pinto beans went into shortage and the price increased at least x five. Almost overnight, prices on normal goods rose 500% to 1000%. A supplier would pull product off the shelf, declare a shortage, raise the price and restock.
Liberty For Me is right. China will be pickin’ up deals at the world-wide yard sale.
By whatever May 9, 2010 at 1:07 am
http://apnews.myway.com/article/20100508/D9FIDGM01.html
Venezuela annual inflation rate hits 30 percent
By No Name May 9, 2010 at 9:49 pm
Read the article only after you have been on the site…..which has been around for some time.
There is no more money or credit that will be generally accepted.
The next step is full bore withdrawl deflation. Ben does not get and most economists can not comeprehend real deflating prices.
By WorkingTommyC May 10, 2010 at 7:50 am
Political Hack is right: we the people are the ones who will be paying for this in the end one way or another hence the inherent lack of morality in almost all current government intervention in the market place.
Deflation has hit us in very small waves so far as has inflation, nothing major yet. If deflation hits hard, it will probably be just before a major inflationary period. Production then falls with much of it ceasing entirely due to a lack of demand and inability to generate sufficient income for companies to stay in business.
The remaining goods are bought up, then demand goes up. There is a lot of money for a while with not many goods to purchase (pretty much the way the USSR’s population existed for the most part with a government owned economy) so that the money is spent on whatever’s out there causing prices to rise and then inflation. If there weren’t a definite lag time in starting up production, this might not be such a big deal but it can, in some cases, take years for companies to come on line producing items at a profit.
The reason people spend so much and buy so much of ABSOLUTELY FREAKIN’ ANYTHING during hyper-inflation is that their currency is in a classic “use it or lose it” situation. To hold onto rapidly devaluing currency is to see your accumulated sweat evaporate before your very eyes.
In addition, hard, durable goods of ANY kind are something you can (hopefully) barter with. Even better, having the means to produce food (farmer/rancher) makes sure the transfer of wealth in bartered goods or currency–whatever it’s worth–comes your way.
By Just a good ole boy May 10, 2010 at 9:24 am
With all these end of the world predictions makes one wonder if the markets might crash on say 12.21.12???
By Louis May 10, 2010 at 10:44 am
read martin armstrong
then you know when it will happen
it’s a discrace the man is in jail …
By WorkingTommyC May 12, 2010 at 8:48 am
End of the world?
Nope, just a very painful correction.
But look, if freakin’ MOODY’S for gosh sake is talking about “fiscal adjustments of a magnitude that, in some cases, will test social cohesion,” I don’t think it’s something to take lightly. There’s certainly no possible moral obligation on the part of the government to make it worse as they’re doing with every move they’ve made so far–if common sense and morality are ever factors in economic debates.
By Barry June 8, 2010 at 3:06 am
James Strickland you are a f***ing faggot! Go take your voodoo economics someplace else. There is absolutely nothing special about your country anymore as to why the USD must be a world reserve currency. Times have changed and it is matter of time before the USD is dropped as a reserve currency and very soon you’ll start looking like Zimbabwe and YOU (emphasized) will be eating and drinking mud water because that’s all you’ll be able to afford with your toilet paper currency.