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When Deflation Becomes Hyperinflation

January 9, 2014

As we begin 2014; it seems incredible to me that we still have what is known as “an inflation/deflation debate” raging. But a debate which was merely frustrating five years ago is now absurd; because it is founded on an entirely false paradigm.

What is logically implied in this “debate” is that spiraling inflation or crushing deflation are alternative scenarios; when, in fact, it has been patently obvious for many years that these two forms of economic cataclysm not only can be but must be concurrent (if not simultaneous) scenarios.

Here I can claim no personal credit, as others saw the degeneration in the West into literal “Ponzi economies” sooner than myself. Darryl Schoon (for one) recently noted ( )  his own previous work in this area, and he, in turn, credited Bill Bonner with reaching this conclusion earlier than himself, going all the way back to 2006.

Even beyond this; there has been the work of John Williams, the eminent producer/creator of It is Mr. Williams who first made the quantum leap in analysis in noting as our debt-saturated economies crumbled towards collapse – and fiat money-printing increased exponentially as a result – that “inflation” and “deflation” were not competing scenarios. He coined the term “hyperinflationary depression”, one which I subsequently adopted in my own work.

As we careen into a Greater Depression with nothing but “the Great Depression” to guide us as a template; what caused John Williams (alone among all analysts) to realize that this time it is different? Much like we could classify the fictional genius of Sherlock Holmes as “mere observation”; we could similarly abbreviate Williams’ brilliance as “mere arithmetic”.

What is different in the Greater Depression unfolding before us today, versus the Great Depression which occurred one Kondratieff Winter before this? It’s the arithmetic.

With few exceptions; all the larger economies in the world of 1929 were solvent, and (prior to the Great Depression) relatively healthy. The anemic, debt-saturated husks of the 21st century bear absolutely no resemblance to the robust economies of that era.

A healthy person can suffer through a serious illness, or engage in a stringent diet (or even fasting), and then expect to recover their vitality once the illness or self-imposed fasting had ended. However; put someone already suffering from anorexia on a severe diet and you kill them.

The Great Depression of 1929 was an economic catastrophe; a severe illness inflicted upon otherwise healthy economies. The Greater Depression of the 21st century is an existential event; where the current economic order is in a terminal descent. It is the combination of a severe economic epidemic ravaging a collection of already economically-crippled nations which makes these two, seemingly parallel catastrophes entirely distinct events.

Specifically, it is all about simple arithmetic. What were most of the nations of the Great Depression-era forced to do, in order to help their own populations weather that economic storm? They borrowed more money, generally much more. To use some of our own, modern vernacular; they “ran up their credit cards.”

What is the recourse of the debt-saturated economies of the 21st century, as this Greater Depression descends upon us? Our “credit-cards” are already maxed-out. And so these sovereign Deadbeat Debtors of the 21st century print ‘money’: more and more and more of it, backed by nothing – not even their own “IOU’s”.

Here we see the prediction of John Williams manifest itself in black-and-white (in a chart which regular readers are undoubtedly sick of seeing):

As the debts go higher and higher (which can only end in a deflationary crash); we see the money-printing accelerating at least as quickly, if not faster (which can only end in hyperinflation). Much like the deductions of Sherlock Holmes appear “elementary” once explained to the reader; so too do these economic dynamics appear, which Williams was the first to correctly decipher.

Prior to committing us to a hyperinflation death-spiral (as evidenced by the chart above); it would have been possible to have suffered only a deflationary collapse/purge – a debt-default purge known historically as “Debt Jubilee”. But this would have required the Masters of our Ponzi Economies to allow their own, ultra-leveraged Paper Empire to also be entirely vaporized in that economic purging of bad debt and malinvestment.

It is because these Masters (previously identified as “the One Bank”) refuse to allow their empire of bad debts and ultra-leveraged bets to implode that they have committed us to the worst of economic catastrophes, hyperinflation. Like trying to inflate a punctured tire; they pump more and more of their paper currencies into these Ponzi Economies (at an exponentially increasing rate).

Where confusion about this hyperinflationary depression ahead of us seems to envelope other commentators – and simultaneous or concurrent inflation and deflation – is that it is possible for some asset-valuations to go straight up (to infinity) while others go straight down to zero (or less).

Specifically, this dichotomy will take place between paper instruments and hard assets. Any/every entity which is encumbered by the millstone of debt will plunge to zero. With somewhere in excess of $200 trillion in debt already floating around the global economy; the downward “suck” as all these debt-dominoes implode will reach an economic velocity never before witnessed in our history.

Aggravating this debt-default cataclysm (immensely); all of the extremely leveraged gambling in which the One Bank engages in its Derivatives Casino will also, instantly implode. This reckless gambling (and fraud) has already reached some unimaginable sum well in excess of $1 quadrillion.

While most of this derivatives gambling is sequestered amongst these banking oligarchs, themselves; this even greater financial implosion will multiply the velocity of the debt-bubble(s) implosion which takes place across the broader economy. In physics terms; this is nothing less than an economic “black hole” – from which nothing (paper) can escape.

Beside this; we have the hyperinflation spiral, as exponential money-printing inevitably leads to the only mathematically possible outcome. Any item produced in infinite quantities, and at zero cost must be worthless,  as an elementary proposition of logic/arithmetic.

Hard assets possess a virtue which is almost beyond the comprehension of most of us, in our debt-saturated lives. They are not encumbered by debt, meaning (as more elementary logic/arithmetic) they cannot go to zero in value. What then will be the “price” of those assets, denominated in absolutely worthless fiat currencies?

It is essentially a nonsensical question. One can “buy” nothing with a worthless currency, which is simply another way of saying that the “price” of hard assets will (quickly) soar to infinity. This is what economic theory (and simple arithmetic) tells us must happen with any exponential spiral in money-printing. This is what empirical evidence tells us has happened in the many hyperinflation episodes in history.

The simple fact that our nations are bankrupt cannot give worthless currencies value. The same level of money-printing which must result in hyperinflation in a solvent economy will also result in hyperinflation in an insolvent economy. This is the point of logic entirely lost in the inane inflation/deflation “debate”.

Conversely, hyperinflationary money-printing cannot prevent a debt-default implosion. If this was true; then we would have never seen any sovereign nation go bankrupt. Deadbeat nations would simply keep printing, and printing, and printing their worthless paper until they became “solvent”.

But this is nothing more than the metaphor of the deadbeat-debtor trying to ward-off personal insolvency by kiting cheques. One cannot “pay” debts with worthless paper. It requires wealth to satisfy obligation. In our world of electronic currency; this most-elementary proposition has been entirely forgotten – buried under the lies and propaganda of the bankers seeking to prop-up their Ponzi system.

The hyperinflationary depression first predicted by John Williams is not merely a plausible scenario. It is an absolutely inevitable fate.

We are already past the “point of no return” in our debt-default spiral. Proof of this is that we must now print these (worthless) fiat currencies by the trillions merely to pay the interest on our debts. This is the mathematical definition of a Ponzi-scheme.

As further proof of the desperation of these lawless Deadbeats; we now have Western governments engaging in the naked theft of assets to plug holes in their Ponzi economic system: the abominable euphemism which these Deadbeats call “a bail-in”.

We are already past the point of no return in our hyperinflation spiral. Proof of that is supplied every time the chart of the United States’ adjusted monetary base is flashed before readers’ eyes: an extreme exponential function (of the world’s “reserve currency”), which mathematically epitomizes the words “out of control.”

This is why commentators such as me point to precious metals. They are hard assets. They are the ultimate “good money”, in a world about to be full of nothing but worthless paper currencies. And thanks to our current Hostage Markets; they are the most-undervalued of all hard assets.

Nothing can prevent the economic storm ahead of us. Nothing can shelter us from that storm better than precious metals.

Jeff Nielson

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is

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