It is inevitable… (end of the inflationary cycle)

Two Chicago state reps: Bring in the National Guard

For as long as the authorities can induce credit and monetary inflation into the system, the debt load can be expanded thus the state can appear to be able to meet its obligations like social security expenditure or unemployment benefits or interest on its sovereign debt for example. During this period of time, alarmists keep warning that unfunded liabilities will eventually bite the state in the ass. However, the day on which the state gets bitten in the ass is at some unspecified point in the future. And for as long as inflation is running on a positive trend, that day can be postponed.

Inflation can be kept on a positive trajectory by various means. However, inflation is an exponential dynamic thus whatever means are employed to keep it on a positive trend, will necessarily need to be ever more drastic than previous attempts.

Since globally today we are all pretty much on a US$ fiat monetary system based on floating exchange rates, we all have to contend with an inflationary dynamic that is 100 years old; that is since the inception of the modern Dollar in 1913. During this time, inflation has stalled twice; once in the late 20s and once in the late 60s. Both periods were characterized by excessive debts and excessive industrial capacity. However, whereas the crisis of the 20s can be reasonably argued resulted in WWII, the crisis of the 60s resulted in the assimilation of the then major currencies into the US$ (abrogation of Bretton Woods and adoption of floating exchange rates). In turn, inflation was then stoked by assimilating other currencies via globalization.

Today, inflation has hit the wall once again.

Unless someone somewhere comes up with a brilliant idea to kick-start the inflationary cycle, this time around the resolution will likely take the form of a global conflict.

The reasoning for this dark prediction is as follows. Fiat money is predicated on inflation. In the absence of inflation, fiat money has no reason for being and the ability of the state to spend liberally (on social, scientific or military ventures for example) is hindered. Thus inflation is the conditio-sine-qua-non of opting for a fiat monetary system.

That being the case, the state has a vested interest in maintaining inflation on a positive trajectory. But, inflation is exponential in nature thus it is necessarily limited. The rub is that the point at which the state can no longer induce inflation is the point at which social costs are rising but tax revenue is declining. Since this is also the point at which the state can no longer expand debt (the Fed has been the single largest buyer of its own sovereign debt in the past year… yup! That’s: the Fed issued and purchased its own sovereign paper albeit through primary dealers to whom it gives money free of charge anyway), declining tax revenue and rising social costs spell sovereign bankruptcy.

At the social level, that is an explosive juncture. The end of the inflationary cycle, is sure to bring civil unrest and, eventually, revolution.

The trouble is that whereas in the late 60s we had room for maneuver and we could feed the US$ monetary pyramid from the bottom by assimilating new currencies, this time around, in the absence of any other currency of significance that we can bring in on the US$ fiat monetary system, the options are few and well defined.

In order to be able to restart the inflationary dynamic we must absolutely write-down debt and deplete industrial and commercial capacity. Nothing else will do.

But, of course, the moral beacons that our leaders are, rather than coming out and telling it like it is our governments are feverishly at work to build straw men in the form of “foreign evils”. Thus the dark prediction that rather than face the music and admitting the limits of the Western monetary (ergo socio/economic) models, they will throw us into a global conflict. And this one, as I never tire to reiterate, is a conflict that is just around a corner – 2013/2015

In terms of building straw men, nothing would be better suited than another false flag event. In this regard, I’ve come across this today:

You may think Gordon Duff is hysterical and delusional but history is on his side. When our governments need something to happen, they will make it happen by hook or by crook – look up the Opium Wars, Pearl Harbor, Bay of Tonkin, My Lai as well as, very likely, much more recent events…


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2 Responses to “It is inevitable… (end of the inflationary cycle)”

  1. David W. Lincoln Says:

    Here is another log on the fire to make an itchy trigger finger even more itchier:

    Take a look at the video.

    When it comes to obligations that are out there, but there is no money to meet them, well either we see a peaceful way out and old banks going bust, or the Mother of all continuing warfare.

    What I would love to know, Guido, is about these obligations. Who has been engaging in their egos writing cheques that their bodies can’t cash (a bow to the movie, “Top Gun”).

  2. Birth of a Nation: THEY HATE YOUR FREEDOM! | Debt Finance Wisdom Says:

    […] It is inevitable… (end of the inflationary cycle) « Guido's temple … […]

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