Thursday, November 12, 2015

Hyperinflation? Not likely.

You know, one thing I think won’t happen, is ‘all of those printed dollars coming back home’. Right now there are oversupplies of just about everything, and that will get worse in the coming months. The real crisis is about central banks creating artificial demand for several decades because the underlying technological paradigm has been rendering workers increasingly redundant. So you create bubbles in stocks or real estate to provide some additional economic activity. Or, bubbles in subprime, nonperforming car loans or subprime nonperforming educations. End result, we now have way to much real estate, too many cars, too many grads, too much junk bought on credit. What we don’t have, is a way to allocate consumption, as the link between REAL jobs and consumption is broken. People consume because the government is trying to keep all of those supply chains working, so they print or borrow capital to hand to the people in order to keep the delicate and complex production machinery working, which has nothing to do with keeping people alive, that’s just a (politically expedient) byproduct. Now that the true deflationary impact of technology can no longer be held back, those supply chains are indeed starting to crack. First goes the retailers, like Macy’s, Sears, etc. and even, yes, McDonalds. We are seeing it also at the other end of the manufacturing sequence, way upstream, in the collapse of mining, coal, oil, industrial metals, lumber. In between, manufacturers are feeling it too, Catapillar, being a bell whether stock, is going down. The whole industrial system is ‘deflating’, as aggregate demand collapses. People without real jobs and real incomes, just don’t have the purchasing power to maintain the system’s liquidity and continued operation. The cause, being the curse of manufacturing efficiency with labor disenfranchisement. So, countries that are holding treasuries and want to unload them face the uncomfortable fact that it’s hard to know what piece of real estate, what industrial property, what patent, whatever, will have any ‘income value’ in a structural, global, deflationary collapse. Though the Chinese have already unloaded a bunch of these to buy properties around the world, expect the pace of redemptions to slow dramatically as the outlines of the collapse become clearer. There is a better than even chance that almost all current possible investments from here on out will be under performing or non-performing for years, maybe decades. This means to me, that many of the U.S. Treasuries that are held by nations, at some point will be left unused, or when thought of as ‘money’, left unspent. Many will expire worthless at some point, as no one will have been able to figure out what a real asset was, over the time period they were still viable. That time period being, while the U.S. Government that printed and maintained them, still existed.

No comments: