Posted at
Goldmoney
Gold price set for hyperbolic increase
2011-DEC-24
I
recently posted an
article for GoldMoney showing how US True Money Supply (TMS)
appeared to be growing at a hyperbolic rate, and
that gold was also on a hyperbolic course. The
difference between hyperbolic and exponential is a
hyperbola’s rate of growth increases with time, while
exponential growth does not. Hyperbolic growth in the
quantity of money ends with hyperinflation, while
exponential growth can go on for ever. Both TMS and the
dollar price of gold are pointing to a hyperinflationary
outcome. This article explains why this might be so.
There are five apocalyptic engines pushing the growth in
US money supply: they are the government’s budget
deficit, its debt trap, the financial condition of the
banks, the delusion of Keynesian solutions, and lastly
simple compounding arithmetic.
-
The US government collects only 55c in taxes for
every dollar spent. It is relying on economic
recovery to reduce welfare payments and increase tax
revenue to close the gap. This prospect is receding
and establishment economists advise against cutting
government spending.
-
The US government’s debt trap is concealed by the
exceptionally low interest cost of funding. The only
reason this cost is not higher is the Fed maintains
a zero interest rate policy. However, as surely as
night follows day, price inflation will start rising
as monetary inflation feeds through, forcing the Fed
to allow interest rates to rise long before any
economic recovery occurs. The rise in interest costs
will escalate the budget deficit, which will be
financed, directly or indirectly by further monetary
expansion.
-
The banks’ balance sheets are considerably weaker
than stated, because of unrealised losses on assets,
loan collateral and write-downs on their own debt.
Real estate collateral write-downs alone probably
exceed bank equity of $1,400bn. On an honest
analysis the US commercial banks are collectively
bankrupt. To simply survive the banks have no
alternative other than to reduce loan exposure while
requiring continuing monetary support from the Fed.
-
Keynesian economists, aware of the banks’
difficulties are terrified of bank credit
contraction. For this reason, the macroeconomic
establishment strongly promotes the expansion of
narrow money to buy off a deflationary depression.
-
As the purchasing power of the dollar falls, the
result of past monetary expansion, yet more dollars
have to be issued to cover increased government
costs. Past inflation becomes a compounding factor
behind price rises.
Essentially, money will be printed at an accelerating
rate to buy time rather than face the three realities of
government default, an over-indebted private sector, and
a bankrupt banking system. The Keynesians are belatedly
aware of the dangers and see no alternative to printing
as much money as is required to defer these problems.
The monetarists in the central banks are hesitant, torn
between Keynesian fears of outright deflation and
worries about the rate of monetary expansion so far.
However, the history of monetary inflation confirms that
once it enters a hyperbolic phase, it is almost
impossible to stop. Armchair critics have derided the
stupidity of central banks and economists in past
hyperinflations, such as in Weimar Germany, Argentina
and Zimbabwe. The truth is that when hyperinflation has
become visible at the price level, it has already gone
past the point of no return at the monetary level.
