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Source link: http://archive.mises.org/10902/goyette-were-near-the-crack-up-boom/

Goyette: We’re near the ‘crack-up boom’

October 24, 2009 by


To say that author and radio show host Charles Goyette is bearish on the US dollar would be a gross understatement. In a wide-ranging podcast at MartinKronicle.com that covered many topics in his new book The Dollar Meltdown, Charles Goyette discussed several hard-hit areas of the political economy that according to him will tank the dollar much further.

According to Goyette, the fallacy of “energy independence,” the bumper-crop the Treasury is printing in US dollars, and vote-buying on the Hill are just a few on the list. But it’s the US deficit that is the highest on his list. “The real level of the national debt is over $100 trillion – it’s an amount of money that can never be paid off. The only thing the government can do is print a lot more money.”

Paper money was created as a convenience, a claim-check on the gold, but there’s nothing behind it anymore. “One day, those who are paid in $US will realize that they aren’t worth anything. Look at gold over $1,000. The price of gold today is a referendum on the quality and quantity of the paper money.”

Inflation Then Hyperinflation

A “bumper crop” is one where there is an over-abundance of corn, for example. There is so much corn, that each kernel is worth very little. That’s what’s happening to the value of the US dollar with the amount of them coming off the printing presses at the Treasury. “The paper currency is a declining asset and as that happens people will convert it to something of tangible worth, such as hard assets. Paper money can be printed with no cost to the politicians.” When that happens, prices of raw materials and hard assets will rise in an inflationary environment.

“Sooner or later, everyone is going to realize that the only way we can pay back one bond is to issue another one and you have a situation where you’re using MasterCard to pay your Visa.” That’s when Goyette thinks we’ll see what Mises called the “crack-up boom,” hyperinflation and the demise of the exchange economy.

Higher Crude Prices

Peak oil may be the new norm, not an outlier event. “When Nixon took us off the Gold Standard, the price of Crude Oil quadrupled. Ten years after that it was up 1,000 %.” All because there was nothing backing the dollar. If the dollar continues its slide, you’ll see crude prices going higher, “the current Administration is on a course to tank the dollar.”

According Nobel winning Economist Joe Stiglitz, the cost of the Iraq war was $3 trillion and could go as high as $5 trillion, yet the first foreign nation to strike an oil deal with Iraq was China. “They are acting like Capitalists all over the world,” said Goyette, “and they didn’t spend $2 in Iraq.”

That does not bode well for Americans – even while our summer driving patterns are as predictable as colder weather in the winter. Goyette also does not believe that the concept of energy independence is nothing more than a fantasy. “Every President since Nixon has been ringing that bell. Carter gave us the Department of Energy (DOE) and they’ve managed to spend $50 billion over the years and they not created a single drop of oil.”

The Dollar Meltdown include several chapters on how Americans can preserve their wealth and personal sovereignty by converting their US dollars to hard assets such as various forms of gold, silver, and crude oil investments. But beware something like the Gold Reserve Act of 1934 where the Government made it a felony to possess gold and mandated that Americans turn it in for $20.67 – and then commanded that gold not be worth less than $35.00 – thereby fleecing Americans of $3 billion.


Stephen Grossman October 24, 2009 at 8:32 am

>”The real level of the national debt is over $100 trillion

Real level? What?! In 1776 money? Calling Andy Jackson!

BioTube October 24, 2009 at 9:20 am

The $100 trillion figure includes unfunded Medicare and Social Security liabilities.

Mark Herpel October 24, 2009 at 10:33 am

I know there are BIG problems ahead. You know it. Your readers know it. So, what about the 300 million other Americans who don’t know it, don’t care and can’t be convinced there is even the slightest problem? The Internet has massed together people of like thinking, everyone jumps on the boat and agrees with each other in their group. But the mainstream is still using their charge cards, financing new cars and buying houses they can’t afford to get a tax credit before Nov. They have never heard of the Mises web site or Michael Martin.

I don’t see anyone, in the mainstream rushing to selling stock & buy gold because inflation is on the way. In fact if you discuss it with any everyday Joe, he’ll say the SSA says NO inflation.

How does one person, writing a blog have any impact beyond their tiny following? What’s the use, when the mainstream 60 million viewers each night believe what’s said on NBC and ABC news. If you can’t convince the masses anything is wrong, aren’t you just preaching to the your own choir? What’s the point continually proving to ‘your crowd’ your right and everyone else is wrong? What’s the point of it all?

Ireland October 24, 2009 at 3:40 pm

Before going out and acting on this post, one may want to consider the possiblity of the credit crunch bringing the value of liquid dollar assets (cash) actually higher. Another interesting link about recent FED repo test.

DS October 25, 2009 at 5:38 am

How do you get hyperinflaton, or any inflation at all, when M2 and M3 are shrinking? Ignoe M1 – it is a worthless measure, but it is barely growing as well. The money supply is shrinking in line with the shrinking demand for debt.

Until the Treasury starts printing dollar bills and mailing them to citizens – which it absolutely is not doing now – we won’t have inflation. Every dollar created has to be loaned into existence and the increase in government debt does not even come close to offsetting the deleveraging of the private sector.

We may have hyper-inflation one day, but it won’t be any time soon.

Carl October 25, 2009 at 5:58 pm

In an economy that is deflationary what does the American government do? It devalues the money. Why? It can pay off debt with cheaper dollars, it wont need to lower the minimum wage, it can keep it’s handouts from looking like they been lowered and it can excite foreigners to buy American.

I do like to think they will turn off those printing presses sometime soon. But in either case I bought gold about 9 years ago when it actually sold for less money that it cost to mine it.

Steve Hogan October 25, 2009 at 7:10 pm


If one defines inflation as an increase in the money supply, the geniuses at the Fed have indeed created inflation in massive amounts. What you’re talking about is price increases, or the lack thereof. It is not the least bit surprising that banks are not loaning out the newly printed money to any great degree, as they’re are desperately undercapitalized, and they know it.

Further, their customers are broke and cannot pay back loans, so the “magic” of fractional reserve banking has not manifested itself in skyrocketing consumer prices – yet. Why loan money and risk another default and possible bankruptcy when the central bank is giving them free money and allowing them to earn interest for the privilege?

No, you won’t see 70′s style inflation or worse until buyers of US Treasurys dry up and the world decides that all those Reserve Notes aren’t worth the paper they’re printed on. Then the “quantitative easing” (I love the euphemism. How about “counterfeiting”?) begins in earnest. When that happens, there will be a rush for the exits. It won’t be an orderly affair. You’ll see widespread panic and all the nasty side effects that occur when social order implodes.

Got gold?

redshirt October 25, 2009 at 9:12 pm

DS, my 2 cents….

Remember that most of the dollars are in fact overseas. The bond bubble will burst as the foreign market dries up. Not able to sell debt any longer, the FED will be forced to monetize the federal debt directly by buying it (printing money). Furthermore, as those bonds come due, many short term, the FED will be forced to print money to pay those too. People holding dollars will quickly want to move them by buying up stuff. And off to the races we go. (Someone correct me if I am wrong on the mechanics.)

A temporary credit contraction is normal for a recession. A protracted credit contraction is abnormal, in that it is only due to the gov propping up prices (gov competing for credit and dumping the money into bailouts and moral hazard incentives to buy stuff). We should have seen prices really drop hard, then we would find bottom, and the banks could discover the new productive activities to finance. Credit would then flow again.

As it is, the credit contraction will not stop inflation from coming. In fact, the longer the credit contraction goes, the sooner we will see inflation. (The gov will be eager to bailout and provide stimulus, the tax base will continue to be too low, and the industrial sector will stall further.) The dollars in circulation will more and more not be dollars earned — they’ll be truly handed out. This will perpetuate the pressure to sell more debt, thus instigating the break in demand for the dollar debt.

Derek October 25, 2009 at 10:49 pm

To Mark Herpel:

You overestimate the powers of the MSM and also of Fractional Reserve Banking.

The Mainstream Media is using the old model – we feed you the programming as we see fit, and you eat it up then watch the commercials between entertainment. This model is failing – these government-extension organizations are losing business daily to the internet, where the free market has provided a beautiful alternative in which individuals can select which content they want to see and when, and with minimal advertisements to interrupt. Revenues for most of these companies are down.

Ted Turner is a fantastic example. The poor chap is down to his last $2 Billion! :)

These archaic providers of “information” are going by the wayside as the free market provides more benefits to end consumers who are gravitating to these new mediums.

With your reference to charge card increases etc, you seem to forget that the private sector has decreased debt by the largest percentage in a single year in over half a century! We are past that turning point in the full Fractional Reserve Banking system where lending standards have decreased, and the economy in its entirety cannot sustain the servicing of the debt relative to the productivity it creates. (i.e it has taken over $6 of debt just to produce a single $ of GDP growth – and this is NOMINAL – since 2000). All markets have been fueled by credit in lengthy bull-runs, and sentiment towards leverage and “asset appreciation” is starting to turn.

Despite what this fellow is saying, if you read through, say, JPMorgan’s latest financials you will see that Tier-1 capital is DOWN 60% over the last year and deposits have been depleted by $100 BILLION. This is NOT currently inflationary. Also, many transactions by banks being made on foreclosures are practically off-balance sheet as they scramble for funds, selling almost entirely to cash-only buyers at fire-sale prices. This is also deflationary as total money (credit) is contracting rapidly.

Perhaps several years out we will see the effects of the increased monetary base grab hold after many liquidations have occurred – but until then deflation, possibly violent and rapid, is the norm and asset prices across the board (including gold and silver to a lesser degree) are going to decline as they are all fueled by credit and positive sentiment, both of which is contracting and withering fast.

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