U.S. dollar continues down the road toward hyperinflation

The latest financial results of the U.S. government show that it continues to spend and borrow recklessly. As a consequence, there has been no improvement in the hyperinflationary outlook for the U.S. dollar.

Hyperinflation results when a country’s central bank turns government debt into more currency than is demanded in economic activity. It is unfortunately impossible to measure precisely the demand for currency. Nevertheless, the rate at which the government is borrowing can be used as a general guideline to determine if too much currency is being created.

If government borrowing causes the debt to accumulate at rates of increase greater than the historical trend, clearly too much new debt is being added, which forces the central bank to ‘print’, i.e., turn that debt into currency. I have discussed this phenomenon before. “The [Federal Reserve] has one mission. It is to make sure that the federal government obtains all the dollars it wants to spend. If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them. The Fed must print them.”

The following chart illustrates the worsening problem.

Federal revenue remains stagnant, indicating that the economic recovery is weak at best. At the same time, federal spending is not contracting. Therefore, the gap between income and outlays remains near record levels. New debt continues to be piled upon existing debt.

The once-almighty U.S. dollar – that only a few decades ago was considered to be ‘as good as gold’ – continues down the road toward hyperinflation. All that is needed to ignite the hyperinflationary bonfire is a small spark.

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frankseles

The national debt has doubled within the last ten years and now is more than 90 per cent of the annual gross domestic product. The country’s GDP is approximately $14.6 trillion. The U.S. maintains a national debt of $13,033,645,753,564,

frankseles

Some say $2000 Gold! Some say $3000, $4000.$15,000,$20,000 Arguments are being made for goldprices of $25,000 or more. Andthe reasons for higher gold prices cited, number asmany as thepredictions themselves. Gold is a hedge against inflation and makeno mistake, when you print a fewtrillion extra dollars for bailouts andstimulus, inflation is coming. Printing more dollars out of thinair sends the value of existing dollarslower. Lower dollar means ittakes more dollars to buy the same amount of gold- or anything for thatmatter. It's a simple fact, Gold Prices Rise! Right now, interestrates have one way to go - UP! And just like in the 70s,the last timeinterest rates started moving up off of similar lows, goldpricesproceeded to rise over 2200%.

frankseles

"How will we thenfinance our debt?" If there is noone left to lend us any money, (rumors to thateffect are alreadycirculating) how do we fund it? Answer: "Print more money!"So, the typeof analysis presented in the Money Central article implies anationaldebt by 2017-2020 in the area of $28 to $30 trillion. If interestratesrise, as many feel they must, sooner or later, this will be atremendous burden.At 5%, this is $1.5 trillion just to service thenational debt. And who can saythat interest rates could not be higher.The potential exists for interest onthe national debt to be larger(maybe much larger) in ten years, than the entireannual deficit is for2008 or 2009.And when is this fateful event to occur? With U.S. debtprojected to reach$18.8 trillion by 2014, let's do some math. If mymath background serves mecorrectly, $15.3 trillion of debt represents90% of current GDP and it reallydoesn't look like GDP is going to growfaster than debt accumulates. So, couldit happen this year? 2011?

frankseles

81 BANKS AND COUNTING -Three banks with total deposits of almost $2.3 billion were seized byregulators amid losses stemming from soured real-estate loans, raising to 81 thenumber of U.S. lenders that have collapsed this year. Banks in Nebraska, Mississippi and Illinois were shut, according tostatements on the Federal Deposit Insurance Corp.’s website. The failuresdrained $313.6 million from the FDIC’s deposit-insurance fund. Regulators are closing banks at the fastest pace since the 1990s amid loanlosses tied to real estate. The FDIC’s list of “problem” lenders is the longestsince 1992. FDIC Chairman Sheila Bair said the confidential list rose to 775banks with $431 billion in assets in the first quarter. That’s an increase from702 banks with $402.8 billion in assets at the end of the fourth quarter

frankseles

U.S. Home Foreclosures Climb 44% to Record in May. U.S. home foreclosuresreached a record for the second consecutive month in May, with increases inevery state, as lenders stepped up property seizures, according to RealtyTracInc. Bank repossessions climbed 44 percent from May 2009 to 93,777, the Irvine,California-based data company said today in a statement. Foreclosure filings,including default and auction notices, rose about 1 percent to 322,920. One outof every 400 U.S. households received a filing. Almost 3.1 million properties have been seized by banks since April 2005,Daren Blomquist, RealtyTrac’s marketing communications manager, said in aninterview today. “The second quarter won’t be the peak,” Sharga said. “I’m noteven sure 2010 will be.”

frankseles

Initial jobless claims jumped again last week ending three straight declines.A bill that would further extend unemployment benefits failed to pass the USSenate on fears that it would simply add more to an already ballooning deficit.Falling gasoline prices helped push down consumer prices, but core consumerprices, which strip out volatile energy and food figures, rose in May by .1percent. The beating that everyone expected the housing industry to take after the taxcredit expired is coming to pass. New home construction fell by 17.2 percent inMay. Sales dropped by more than 20 percent in some areas and applications to buyhouses are down by over 30 percent compared with last year according to theMortgage Bankers Association.

frankseles

reports that legislation was passed to raise the debt ceiling to just more than $14 trillion but it is expected to be raised by next year. In 1840, the U.S. debt stood at $3,573,343.82 $3.5 trilliondollarsworth of debt. With interest in dollar denominatedassets diminishing aroundthe world, as evidenced by reports thatcentral banks are now trading dollarbacked assets for gold, this couldleave our government and the Fed with onlyone option . . . PRINT MORE DOLLARS!If there was ever a reason gold pricescould climb 2200%

frankseles

The federal budget deficit was $1,424,719,860,000 ($1.4 trillion) on a national budget of $3,551,309,116,000 ($3.5 trillion) representing a shortfall of some 40 percent. Spending is out of control.

frankseles

Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week. “We can’t afford to deny reality or delay action any longer,” said Gov. Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in March, will save some $300 million in the first year alone.

moneyman213

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