This CNBC Interview with Jim Rogers, the Commodities King, and the first partner of George Soros' Quantum Fund, during the time when they broke the Bank of England, is really worth investing some of your time.
I have tremendous respect for Jim Rogers, which is why I continue to consider the Inflationary Holocaust / Hyper Inflation Scenario, which may happen if US "prints too much money".
"When you print gigantic amounts of money, and you flood the world with money, throughout history, that has led to inflation. ....... they (US Government) is setting the stage that when we come out of this (crisis), of a massive inflationary holocaust." (Jim Rogers)
The CNBC Interview was taken a few days ago, so this is quite a recent discussion.
I have tremendous respect for Jim Rogers, which is why I continue to consider the Inflationary Holocaust / Hyper Inflation Scenario, which may happen if US "prints too much money".
"When you print gigantic amounts of money, and you flood the world with money, throughout history, that has led to inflation. ....... they (US Government) is setting the stage that when we come out of this (crisis), of a massive inflationary holocaust." (Jim Rogers)
The CNBC Interview was taken a few days ago, so this is quite a recent discussion.
Extremely deep thoughts from Jim Rogers. Can you see how far he has thought ahead of the situation? That is why he is a multi millionaire, if not a billionaire, and THE UNDISPUTED COMMODITIES KING.
TThe Hyper-Inflation Scenario is THE MOST SCARY SCENARIO of ALL ECONOMIC SCENARIOS even worst than the Perfect Storm Scenario where we get merely a GREAT DEPRESSION. Why? Because when Germany experienced Hyper Inflation, it cost 1 million Marks (German Currency) to buy one loaf of bread, when one or two years before, it cost only 1 Mark.
This means that if you are a millionaire today, and we experience Hyper-Inflation, your one million dollars will just buy you a loaf of bread. This is what Jim Rogers is talking about when he mentions the words, "Inflationary Holocaust".
The actions of a government printing too much money can make you, a millionaire, a poor man. If you are already poor, then, you will become much poorer. How much poorer? Well, just think about it - a million dollars to buy a loaf of bread? That's how poor.
But what if you don't have the money? People who didn't have the money during the Hyper Inflation times just drop dead and died on the streets from starvation, winter cold, and diseases. That's why Jim Rogers refers to Hyper Inflation as a HOLOCAUST.
Right now, the Governments of the world, especially the US Government is solving the financial banking crisis by printing money - tons and tons of money. What is the ultimate consequence of this desperate measure, is left for the world to experience in the next decade to come.
Most people think Jim Rogers is a bit nutty, in sharing such a view. These same people thought he was nutty when he told everyone to buy Oil at US$18 per barrel, and told them, you will never see this price again.
The million dollar question is not whether he will be right, but rather, "What if he is right some time in the future?" It is a question worth considering but not losing sleep over. It is a question that we need to prepare an answer for, and put our contingency plan into action before the situation becomes ugly.
If you remember, since July 2007, some smart people (with hindsight we call them smart, but back then, we had many nasty names like pessimists, doomsayers, idiots, nutty, etc.), these people were already warning us of the consequences of the banking crisis and the impending economic crisis. Looking back with hindsight, we could have been more prepared, did a few more things that we didn't do, and we would be in a better position than we are today.
This is what this post is about. The Hyper-Inflation Scenario is a long, long way off, but when Hyper Inflation hits a country, you would not even know what hit you, and poof, you are now super poor.
The billion dollar question in my mind now is, "How can I be constructive and offer some form of a solution or action plan?"
Frankly, Hyper Inflation Scenario is so rare that there are very few experts in this field, and whilst Mr. Ben Bernanke, Federal Reserve Chairman is THE Great Depression World Expert, he is not a Hyper Inflation Expert. He is now putting into place the solutions he concluded upon, way back in the 1980s when he did his research work on the Great Depression. However, I doubt if he has considered the consequences of his solution in terms of Hyper-Inflation. This is systems thinking modeling. The solution of one problem leads to the creation of other problems.
So, what should we do? What CAN we do? I think we must not jump the gun and become paranoid. Right now, the problem is one of severity of recession, not Hyper Inflation. In desperate times of crisis, we must focus on solving problems we currently face; not problems we may face.
BUT, the difference is that we need to monitor the situation very closely. The inflation numbers will start to tell us something, and the US$ movements will give us further tell tale signs. In my opinion, if there is going to be a Hyper Inflation Scenario, then the US$ must devalue like crazy, and thus, we need to look for potential cracks in the dam. This will be the trigger of a Hyper Inflationary Environment.
In my opinion, a US$ Devaluation Crisis by itself will trigger a Great Depression, but not necessarily a Hyper-Inflation Environment. BUT, for a Hyper-Inflation Environment to happen, it is my opinion that the US$ Devaluation Crisis MUST happen first.
If it is going to happen, how will it happen? If we cannot visualize the scenario happening, we cannot prepare for it. First, the US$ Devaluation Crisis will lead to a Great Depression. With the Great Depression being experienced, the Government will become desperate to solve the economic problem as tremendous pain is being experienced.
Conventional Economic Theory, i.e. Keynesian Theory, has it that the Government has to spend even more money, usually on infrastructure projects then. If too much money is spent, whilst the effect of the government spending is not converted into cash in the hands of the general consumer, but instead, only in the hands of the already rich, then, the Government will need to keep spending even more money. This vicious cycle causes the whole financial system to be flooded with printed money not backed by any real assets like Gold Reserves, and eventually, the excessive amount of money in circulation becomes worthless.
This is the real danger. It is important for Governments to spend on infrastructure and other projects, but in my personal opinion, there is one very important condition that is not clearly stated in the economics textbook. Governments must spend in order to create jobs, and not spend for the sake of spending.
Job Creation is the KEY to an economy growing out of a recession or depression. There is a need to minimize the damage caused by overspending, by spending wisely, or else the dangers of Hyper Inflation sets in.
This is why some people are calling for the US Government to leave the economy and the banking crisis alone, and not bail out all the banks. The problem is ...... in the Great Depression of 1929 to 1939, President Edgar Hoover refused to bail out the banks, and as a result, 10,000 banks collapsed in the US alone. Thus, not bailing out the banks would mean another Depression; the question of whether it is a GREAT Depression or a normal Depression is academic. You don't want to live in any era of Economic Depression, I can tell you that for sure.
I believe that the US Government is walking a very fine line between solving the banking and housing crisis problems from turning into an Economic Depression, and doing too much and thus, create a Hyper-Inflation Environment, which would be "The Mother of All Economic Pains".
In this respect, I am strongly against another US stimulus package, and against spending on infrastructure at this early stage of the economic crisis, which is just beginning, and nowhere near the bottom, as some people seem to think.
Those people that think that we are already reaching an economic bust bottom are basing their opinions on statistics rather than actual analysis of the situation. This, in my opinion, is faulty thinking in these very uncertain times. Statistics are useful in improving the probability of success, but only in normal situations. We must know what to use, under what circumstances, or we will be basing our decisions on wrong analysis.
So, what do we do, if we really believe that there is going to be Hyper-Inflation?
My solution of the moment, and I admit that I am no expert, is to convert cash into income generating assets eventually, i.e. properties in the form of land, preferably plantations.
In times of Hyper-Inflation, you can expect crimes and social unrest to be extremely high, and insurance policies will never cover you if your property gets burned to the ground. You will then be left with nothing, for all your financial prudence and planning.
For plantations, you could still see it burnt to the ground, but at least, your land is more fertile than before. Haha. No laughing matter, but no one can take the land away from you, unless Communism sets in. So, I am inclined to buy plantation land, with whatever little money I have AND with whatever little I can borrow, to hedge against Hyper-Inflation.
The best times to borrow money is in times just before Hyper Inflation sets in. Interest rates will skyrocket to 40% to 60% p.a. but your assets producing goods will inflate in price at the rate of 100% per month, so why worry about paying 60% interest rate per annum? Yes, borrow s much money as you can, but make sure they are employed in high return assets, and not used in consumption expenditure, which would be the ultimate financial disaster. With the money already spent, and interest rate at 50% p.a., how not go to bankrupt?
BUT, not today, when Asset Deflation is the name of the game, and not Hyper Inflation. This is only a contingency plan to survive and thrive in a Hyper-Inflation Scenario, and not THE Game Plan of today. Today's Strategic Game Plan is to SHORT the markets as asset prices will continue to drop in the foreseeable future, taking into account short to medium term Dow Theory Wave uptrend fluctuations that may provide some reprive to the Bulls.
Best wishes,
Ooi
© Copyright of Praesciens.blogspot.com, 2008
TThe Hyper-Inflation Scenario is THE MOST SCARY SCENARIO of ALL ECONOMIC SCENARIOS even worst than the Perfect Storm Scenario where we get merely a GREAT DEPRESSION. Why? Because when Germany experienced Hyper Inflation, it cost 1 million Marks (German Currency) to buy one loaf of bread, when one or two years before, it cost only 1 Mark.
This means that if you are a millionaire today, and we experience Hyper-Inflation, your one million dollars will just buy you a loaf of bread. This is what Jim Rogers is talking about when he mentions the words, "Inflationary Holocaust".
The actions of a government printing too much money can make you, a millionaire, a poor man. If you are already poor, then, you will become much poorer. How much poorer? Well, just think about it - a million dollars to buy a loaf of bread? That's how poor.
But what if you don't have the money? People who didn't have the money during the Hyper Inflation times just drop dead and died on the streets from starvation, winter cold, and diseases. That's why Jim Rogers refers to Hyper Inflation as a HOLOCAUST.
Right now, the Governments of the world, especially the US Government is solving the financial banking crisis by printing money - tons and tons of money. What is the ultimate consequence of this desperate measure, is left for the world to experience in the next decade to come.
Most people think Jim Rogers is a bit nutty, in sharing such a view. These same people thought he was nutty when he told everyone to buy Oil at US$18 per barrel, and told them, you will never see this price again.
The million dollar question is not whether he will be right, but rather, "What if he is right some time in the future?" It is a question worth considering but not losing sleep over. It is a question that we need to prepare an answer for, and put our contingency plan into action before the situation becomes ugly.
If you remember, since July 2007, some smart people (with hindsight we call them smart, but back then, we had many nasty names like pessimists, doomsayers, idiots, nutty, etc.), these people were already warning us of the consequences of the banking crisis and the impending economic crisis. Looking back with hindsight, we could have been more prepared, did a few more things that we didn't do, and we would be in a better position than we are today.
This is what this post is about. The Hyper-Inflation Scenario is a long, long way off, but when Hyper Inflation hits a country, you would not even know what hit you, and poof, you are now super poor.
The billion dollar question in my mind now is, "How can I be constructive and offer some form of a solution or action plan?"
Frankly, Hyper Inflation Scenario is so rare that there are very few experts in this field, and whilst Mr. Ben Bernanke, Federal Reserve Chairman is THE Great Depression World Expert, he is not a Hyper Inflation Expert. He is now putting into place the solutions he concluded upon, way back in the 1980s when he did his research work on the Great Depression. However, I doubt if he has considered the consequences of his solution in terms of Hyper-Inflation. This is systems thinking modeling. The solution of one problem leads to the creation of other problems.
So, what should we do? What CAN we do? I think we must not jump the gun and become paranoid. Right now, the problem is one of severity of recession, not Hyper Inflation. In desperate times of crisis, we must focus on solving problems we currently face; not problems we may face.
BUT, the difference is that we need to monitor the situation very closely. The inflation numbers will start to tell us something, and the US$ movements will give us further tell tale signs. In my opinion, if there is going to be a Hyper Inflation Scenario, then the US$ must devalue like crazy, and thus, we need to look for potential cracks in the dam. This will be the trigger of a Hyper Inflationary Environment.
In my opinion, a US$ Devaluation Crisis by itself will trigger a Great Depression, but not necessarily a Hyper-Inflation Environment. BUT, for a Hyper-Inflation Environment to happen, it is my opinion that the US$ Devaluation Crisis MUST happen first.
If it is going to happen, how will it happen? If we cannot visualize the scenario happening, we cannot prepare for it. First, the US$ Devaluation Crisis will lead to a Great Depression. With the Great Depression being experienced, the Government will become desperate to solve the economic problem as tremendous pain is being experienced.
Conventional Economic Theory, i.e. Keynesian Theory, has it that the Government has to spend even more money, usually on infrastructure projects then. If too much money is spent, whilst the effect of the government spending is not converted into cash in the hands of the general consumer, but instead, only in the hands of the already rich, then, the Government will need to keep spending even more money. This vicious cycle causes the whole financial system to be flooded with printed money not backed by any real assets like Gold Reserves, and eventually, the excessive amount of money in circulation becomes worthless.
This is the real danger. It is important for Governments to spend on infrastructure and other projects, but in my personal opinion, there is one very important condition that is not clearly stated in the economics textbook. Governments must spend in order to create jobs, and not spend for the sake of spending.
Job Creation is the KEY to an economy growing out of a recession or depression. There is a need to minimize the damage caused by overspending, by spending wisely, or else the dangers of Hyper Inflation sets in.
This is why some people are calling for the US Government to leave the economy and the banking crisis alone, and not bail out all the banks. The problem is ...... in the Great Depression of 1929 to 1939, President Edgar Hoover refused to bail out the banks, and as a result, 10,000 banks collapsed in the US alone. Thus, not bailing out the banks would mean another Depression; the question of whether it is a GREAT Depression or a normal Depression is academic. You don't want to live in any era of Economic Depression, I can tell you that for sure.
I believe that the US Government is walking a very fine line between solving the banking and housing crisis problems from turning into an Economic Depression, and doing too much and thus, create a Hyper-Inflation Environment, which would be "The Mother of All Economic Pains".
In this respect, I am strongly against another US stimulus package, and against spending on infrastructure at this early stage of the economic crisis, which is just beginning, and nowhere near the bottom, as some people seem to think.
Those people that think that we are already reaching an economic bust bottom are basing their opinions on statistics rather than actual analysis of the situation. This, in my opinion, is faulty thinking in these very uncertain times. Statistics are useful in improving the probability of success, but only in normal situations. We must know what to use, under what circumstances, or we will be basing our decisions on wrong analysis.
So, what do we do, if we really believe that there is going to be Hyper-Inflation?
My solution of the moment, and I admit that I am no expert, is to convert cash into income generating assets eventually, i.e. properties in the form of land, preferably plantations.
In times of Hyper-Inflation, you can expect crimes and social unrest to be extremely high, and insurance policies will never cover you if your property gets burned to the ground. You will then be left with nothing, for all your financial prudence and planning.
For plantations, you could still see it burnt to the ground, but at least, your land is more fertile than before. Haha. No laughing matter, but no one can take the land away from you, unless Communism sets in. So, I am inclined to buy plantation land, with whatever little money I have AND with whatever little I can borrow, to hedge against Hyper-Inflation.
The best times to borrow money is in times just before Hyper Inflation sets in. Interest rates will skyrocket to 40% to 60% p.a. but your assets producing goods will inflate in price at the rate of 100% per month, so why worry about paying 60% interest rate per annum? Yes, borrow s much money as you can, but make sure they are employed in high return assets, and not used in consumption expenditure, which would be the ultimate financial disaster. With the money already spent, and interest rate at 50% p.a., how not go to bankrupt?
BUT, not today, when Asset Deflation is the name of the game, and not Hyper Inflation. This is only a contingency plan to survive and thrive in a Hyper-Inflation Scenario, and not THE Game Plan of today. Today's Strategic Game Plan is to SHORT the markets as asset prices will continue to drop in the foreseeable future, taking into account short to medium term Dow Theory Wave uptrend fluctuations that may provide some reprive to the Bulls.
Best wishes,
Ooi
© Copyright of Praesciens.blogspot.com, 2008
Posts
2 comments:
ooi- there is every likelihood that we may be heading to hyperinflation but that is still a number of years off yet ( & as u have pointed out ) we need to prepare for it b buying assets initially ie stocks properties etc.there is now to deal with- where the financial tsunami may lead us to anarchy sooner rather than later.
Dear Jothi,
I agree. Our immediate concern should be to focus on identifying the events / scenarios that will suggest a market bottom, triggering a fundamental buy signal.
However, I would also note that when Hyper-Inflation hits, it is as fast and without warning as a Tsunami. So, investing a few hours to develop the necessary contingency plans is reasonable in my opinion.
By nature, I'm just a very cautious person. When I was in school, I was the School Champion in Chess, with a 70% score, i.e. I win 45% of the time, and draw 50% of the time, and only lose 5% of the time. I don't win all the time, but I rarely ever lose. That has always been my personality my entire life. :)
Best wishes,
Ooi
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