In a hyperinflation, infrastructure upgrades will accelerate, with plenty of opportunity for big government contractors fleeing the declining market in Iraq. Thus, we can expect to see the creation of another $8 trillion in fictitious value, which gives us an estimate of $20 trillion in speculative wealth, money that inevitably will be employed to increase share prices rather than to deliver “energy security.”

When the bubble finally bursts, we will be left to mop up after yet another devastated industry. FIRE, meanwhile, will already be engineering its next opportunity. Given the current state of our economy, the only thing worse than a new bubble would be its absence.

That “$20 trillion in speculative wealth” would come close to doubling the size of the entire U.S. economy. Put that in your pipe and smoke it...

5) Remember historical precedent. When inflation runs wild, stocks can, too.

Too bad you didn’t buy Bindura Nickel last year. Don’t worry; I missed out, too. We could have racked up a 257,964% gain.

No, that is not a typo. At one point in late 2007, Bindura Nickel was up more than two-hundred-and-fifty-seven thousand percent. How could this be, you ask? Because Bindura Nickel trades in Zimbabwe.

As of July 2008, Zimbabwe’s inflation rate was calculated at 11.2 million percent. At that level, it takes a backpack full of cash just to buy a loaf of bread.

The point, though, is the historical precedent. As inflation skyrocketed, Zimbabwe’s stock market soared, too. Not enough to keep pace with hyperinflation, of course, but enough to give investors and traders astronomical percentage gain returns.

The same kind of thing happened in Weimar Germany between 1919 and 1933. The Weimar Republic had no hope of getting out from under a backbreaking load of World War I debt obligations. The victors made demands so heavy that Germany simply couldn’t pay. So they solved the problem by rolling out the printing presses.

This led to the famous images we’ve all heard about: German housewives rolling a wheelbarrow of cash to the grocery store, just to buy a little food. Less famously, it also led to huge gains on the German stock exchange. A few astute traders grew incredibly wealthy, even as most German families lost everything.

So there you have it. To quickly recap, we’re working our way through the direst crisis since the 1930s, as many observers have pointed out. The situation is so bad, the U.S. government is in the same place as China’s... It’s worth risking everything, because everything goes down the drain if the system isn’t saved. The true “powers that be” -- the respective heads of the U.S. Fed and Treasury -- have every reason to bail out their buddies, who are still loaded up on paper assets. We have already seen how America is addicted to bubbles. And we have seen how stock markets can take off like the space shuttle Challenger when paper asset inflation truly gets out of control.

Who wins in all this? The connected players who rack up huge paper gains. Who loses in all this? The poor man in the street who doesn’t have enough in his retirement account to truly feel like he’s been invited to the party. Skyrocketing cost-of-living increases and dollars turned to confetti will be the not-so-lovely consolation prize.

If you see things differently, I’d love to know why. (You know the address: justice@taipandaily.com.) I don’t see how we get out of this any other way. Nine months from now, global equity markets could be up in the stratosphere... and hard asset values higher still.

Justice Litle is Editorial Director, Taipan Publishing Group
Courtesy: www.taipanpublishinggroup.com

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook