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MY CLUBHOUSE THESIS: HYPERINFLATION IS CLOSE

Discussion in 'The Kruse Longevity Center' started by Jack Kruse, Mar 11, 2021.

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  1. Jack Kruse

    Jack Kruse Administrator

    Hyperinflation occurs when prices have risen by more than 50% per month over a period of time.
    Hyperinflation commonly occurs when there is a significant rise in money supply that is not supported by economic growth. The increase in money supply is often caused by a government printing and injecting more money into the domestic economy or to cover budget deficits. When more money is put into circulation, the real value of the currency decreases, and prices rise.

    Hyperinflation can occur when a country’s currency begins to weaken. This is usually triggered by a government increasing the money supply to cover its expenses and pay its debts for any reason.
    Hyperinflation erodes the value of the currency and can render it worthless and usually leads to an economic reset with a new fiat standard set forth by a new government. Most hyperinflation events lead to a complete devaluation of fiat. Assets are lost until a new money system is built to recreate value.

    Hyperinflation quickly devalues the local currency in foreign exchange markets as the relative value in comparison to other currencies drops. This situation will drive holders of the domestic currency to minimize their holdings and switch to more stable foreign currencies. This is where BTC, Swiss Francs, and Norwegian dollars might come in handy.

    In an attempt to avoid paying for higher prices tomorrow due to hyperinflation, individuals typically begin investing in durable goods such as equipment, machinery, jewelry, etc. In situations of prolonged hyperinflation, individuals will begin to accumulate perishable goods. It is wise to stockpile in the months before this event to avoid steep prices.

    However, that practice causes a vicious cycle – as prices rise, people accumulate more goods, in turn, creating higher demand for goods and further increasing prices. If hyperinflation continues unabated, it nearly always causes a major economic collapse. Severe hyperinflation can cause the domestic economy to switch to a barter economy, with significant repercussions to business confidence. It can also destroy the financial system as banks become unwilling to lend money.
    Money velocity dropping is always a sign of hyperinflationary risks. Right now money velocity is extremely low. The table is set for hyperinflation but something needs to light the fuse. What is the fuse?

    The fuse of hyperinflation will be created by the markets forcing the 10-year yields higher rapidly while complicated by a constant rise of the CPI from its 2020 base layer. I expect the CPI to be at 3% by fall and the talking heads on CNBC and Wall Street will misread the signal's meaning. I think by June 21st the big wigs in the bond market will be warning the alarm signals: Paul Tudor Jones, Dalio, and Druckenmiller. Pay attention.

    The rise of the CPI will be a false signal but one that eventually destroys the financial system. What lights the fuse of hyperinflation later this year? QE has provided massive stores of cash that are locked into the M2 supply. Right now inflation is present but tame because money is not moving to drive prices up, but the money is in the system ready to light the fuse. Presently, M2 velocity is extremely low, savings high.

    If this money starts buying, read “lockdowns are gone and vaccines are working” it’s most likely game over because the fuse of hyperinflation will get lit and the Fed cannot raise rates fast enough to control it because if they do they wreck the economy and they cannot fund the government. They must fund the government to keep the military whole as the financial system collapses. If they let inflation run hot, hyperinflation is the outcome and taxpayers with fiat-denominated assets are decimated. Every day the risk of hyperinflation grows in 2021. Any money added to the mix right now is capable of sparking the fuse.

    Hyper
    inflation is created by the mere issuance of more money, with the consequence of higher wages and prices-may look like the creation of more demand. But in terms of the actual production and exchange of real things, nothing is produced. What does the short term look like for America? Demand and growth are stifled by the Debt to GDP ratio.

    Prior to 2020, the U.S.’s highest debt-to-GDP ratio was 106% at the end of World War II, in 1946

    When a country's debt-to-GDP ratios exceed 77% for prolonged periods, experiences significant slowdowns in economic growth. Pointedly: every percentage point of debt above this level costs countries 1.7% in economic growth. The USA is now at 160% on the Debt to GDP ratio and climbing.

    At this rate, the cost of running the government now hinges on what the ten-year bond yields are at now. Anything above 2.5% on this yield makes US default very likely. The ten-year bonds have been spiking for the last three weeks.


    The economy of the USA is driven by a technocracy that is fueled by semiconductive chips. Those chips are now rare because China has strangled the rare earth elements that make them. All that money out there but nothing is being made = when the money hits the system prices will explode via hyperinflation.

    What no one realizes now: Hyperinflation can take virtually your entire life's savings, without the government having to bother raising the official tax rate at all.

    Hyperinflation is when you pay fifteen hundred dollars for the ten-dollar haircut you used to get for five dollars when you had hair.

    Recent Example of Hyperinflation in the World
    Zimbabwe is a country that experienced significant hyperinflation in the past. The Zimbabwean dollar is no longer actively used as it was officially suspended by the government due to rampant hyperinflation.

    A decade ago, during a financial crisis, Zimbabwe recorded the second-highest incidence of hyperinflation in history – the country’s inflation rate for November 2008 was a staggering 79,600,000,000% (essentially a daily inflation rate of 98%).

    Prices in Zimbabwe nearly doubled every day – goods and services would cost twice as much each following day. With the unemployment rate exceeding 70%, economic activities in Zimbabwe virtually shut down and turned the domestic economy into a barter economy.

    The cause of Zimbabwe’s hyperinflation was attributed to numerous economic shocks. The national government increased the money supply in response to the rising national debt, there were significant declines in economic output and exports, and political corruption was coupled with a fundamentally weak economy.

    Hyperinflation in Zimbabwe spiraled out of control, causing a foreign currency (such as the South African rand, Botswana pula, United States dollar, etc.) to be used as a medium of exchange instead of the Zimbabwean dollar.
     
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  2. Jack Kruse

    Jack Kruse Administrator

    If this happens in 2021.......I expect the Bitcoin Standard to be adopted rapidly.

    If the effect is slowed by YCC or pegged rates: Then I expect the release of a USA CBDC to reflate the currency after a devaluation event.
     
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  3. Jack Kruse

    Jack Kruse Administrator

    Asking better questions always illuminates a new perspective that allows you to disentangle from the herd. The herd offers no protection on any frontier.

    Throughout history, there are many who are cursed to share true prophecies but never to be believed. This is true in scientific history and financial history. For the last two years as America's chronic disease epidemics have deepened, my conviction has deepened that the American government is collapsing. I made the case for my members in 2019 that it all began in Chicago in 1944 with the replacement of Wallace for Truman. This is when full political control of the country was usurped by the industrial-military complex and that complex gave cover to the Federal Reserve for a monetary policy that assured General Groves that they could drop the fruits of the Manhattan Project on Japan. The Federal Reserve then would have the protection of a new pet project that they could harvest for money for decades until gradually, then suddenly the music stops.

    Some fish love to swim upstream. Some people love to overcome challenges........decide what type of human you are.

    If you believe you can accomplish everything by "cramming" at the eleventh hour, by all means, don't lift a finger now. But you may think twice about beginning to build your ark once it has already started raining........right now the bond and equity markets have a light drizzle. Who would be bold enough to predict this drizzle might become a maelstrom for value assets?

    Today, the glacial instability of that decision made by politicians at the DNC in 1944 comes to fruition. As a student of history, I learned about Germany in 1923. This is one reason BTC has always been a fascination of mine. I'd suggest most of you read about the original money printer, Mr. Rudy von Havenstein, to see if this thesis is off the mark. You've been warned. Now it is time to prepare.

    As a neurosurgeon, I was taught that every case should be prepared for like it is a battle in a war. As such, I should adjust my thinking before I went to war in surgery so that I may be successful. I was handed a book by a mentor, The Art of War, by Sun Tzu to become a better surgeon in 1993. I was stunned by this incident. After reading the book I was changed as a person and a physician. Because of the lessons in this book, I learned to feed my imagination great ideas so that I would stimulate my ability to critically think. I focused on my own research, and this is why I have always prepared because I know that someday my opportunity will come.

    When I go into Clubhouse I look for the cancer of groupthink. It is present in every room. When like-minded people argue, all they do is provide each other with new reasons supporting already held beliefs. This strengthens their own cognitive biases. This is when I pounce to action. I put in ingredients to change their recipe. Just like solitary reasoners, groups of like-minded people can be victims of belief polarization, overconfidence, and belief perseverance. They never see the truth because they are busy propping up their own version of reality.

    COVID was a compliance test for the coming economic pandemic.
    Certain emotional influences such as peer pressure or extreme fear can cause us to alter our worldviews and change what we accept as normal. That’s what the political technique of the Overton window is all about. Create a crisis (COVID) and move the window of how much freedom people are willing to do without. That’s how governments, schools, and personal relationships become oppressive.

    Our enemy is the Fed and who protects them.

    How do you prepare for your enemy?

    If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.

    I am ready for their coming devaluation because I see the hyperinflation variables they are brewing for the American taxpayer. I might be criticized by many for my beliefs laid out here, but the main misfortune, the root of all the evil to come, will be the loss of confidence in the value of one's own opinion. I am strong in my beliefs because I have put in the hard work of thinking about our current situation.

    Opportunity does not waste time with those who are unprepared. It is no longer about the survival of the fittest. Many who are ungodly wealthy today and financially fit will be brought to their knees. It is about the survival of the wisest. This was my message two years ago in Germany and Poland to the world.......now you can see where this idea was born.

    Alice was a fictional character in the literary past. This financial crisis isn't.

    The wise are superb observers of Nature and rise superior to the blows of fortune.

    Caveat emptor my tribe.
     
  4. Jack Kruse

    Jack Kruse Administrator

    And as the aristocracy develops, government tends more and more to act exclusively in the interests of the ruling class
     
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  5. Jack Kruse

    Jack Kruse Administrator

    The third round of stimulus checks will go out when the income spike from the second round of checks is still pushing personal income above-trend to light the fuse of inflation.

    In contrast, the second round of checks didn't go out until the first round of checks and unemployment benefits wore off[​IMG]

    The next thermodynamic variable people do not see.............The Treasury General Account is starting the rapid part of its decline now. Soon 1.7 trillion dollars will mix with 2 Trillion dollars of Biden stimulus = BTC #6 why Biden is bullish for a BITCOIN STANDARD.
    In 2020, the Treasury issued a lot more bonds than they spent, so they piled up extra cash on the Treasury General Account. Now, the Fed is spending more than they are issuing, releasing that money back into the private system. That money will is the spark to light the fuse mentioned above.
    All other thermodynamic variables held equally, the Treasury drawdown should be dollar negative, although there are other variables like what will rates do. A strong dollar would enhance the collapse. We have never had a TGA drawdown this big before in American history and yet no one seems to see this as a risk. The previous biggest spend down was less than $400 billion.

    [​IMG]
     
  6. Jack Kruse

    Jack Kruse Administrator

    If you look at supply and demand for US Treasuries by examining the Treasury auctions, there's one buyer that's been big historically, but was notably absent last year: foreigners (pink). Foreigners were net sellers of Treasuries in 2020, even with the rebound in EM currencies and some FX intervention in late 2020
    [​IMG]
     
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  7. Jack Kruse

    Jack Kruse Administrator

    CPI came in at 1.68% on 3/10/21. Its trend is up and will hit 3% soon.
     
  8. Jack Kruse

    Jack Kruse Administrator

  9. Jack Kruse

    Jack Kruse Administrator

    Vital signs for the thesis

    The velocity of money rises two ways:
    1. When productive loans are made by banks and the results exceed the interest rate = productive economic growth.
    2. When there is no faith in a currency the money moves faster due to hyperinflation at a great rate = negative economic growth.

    Velocity of money is a vital sign for BTC. As it drops it is bad for economic growth. As it rises it tells about coming hyperinflation.
    If the money multiplier is declining it means that the monetary base and money supply are going up at the same rate it means money is coming from QE and is unproductive.
    The M1 Money Multiplier was discontinued by the Fed in Dec 2019 to hide the real effects of QE.
     
  10. Jack Kruse

    Jack Kruse Administrator

    ClubHouse Lesson: The 25th Amendment will be invoked as a pretext for a currency devaluation. COVID was the first compliance test for the economic reset. In a recession, a devaluation is unlikely to cause inflation. I believe this is why COVID lockdowns were created by the government/Fed in 2020 https://pic.twitter.com/UMnvvwpHoA
     
  11. Jack Kruse

    Jack Kruse Administrator

    ClubHouse Lesson: $1.9 trillion COVID stimulus package + 1.7 billion from the Treasury General account + new Biden taxes to pay to help pay for his next economic initiative which is said to be larger than the 2 Trillion stimulus bill. The Perfect storm for hyperinflation just got more perfect.

    President Joe Biden is planning the first major federal tax hike since 1993 to help pay for the long-term economic program designed as a follow-up to his pandemic-relief bill. WOW. Biden is uber bullish for BTC. Read this blog again folks.
    https://www.patreon.com/posts/45194923
     
  12. Jack Kruse

    Jack Kruse Administrator

    When taxes go up when your Debt to GDP is higher with record unemployment and 30 Trillion in debt guess what happens?

    A recession could become a depression.

    The state of the Federal Reserve is bad enough but take a look at what the states look like.

    STATE UNEMPLOYMENT TRUST FUNDS ARE RUNNING DRY
    The COVID-19 pandemic has placed unprecedented strains on state unemployment trust funds, emptying them in a matter of months and forcing states to take out billions in loans from the federal government in order to keep unemployment benefits flowing to millions of newly unemployed workers.

    It’s a trend that rings true across the country. In Washington, the state’s unemployment trust fund had nearly $5 billion before the COVID-19 pandemic. It’s expected to be entirely depleted by late 2020. Meanwhile, Texas’ $2 billion trust fund was depleted on June 9, just three months into the pandemic.

    Prior to the Great Lockdown Recession, a lot of states had large amounts of money in their state [unemployment benefit] trust funds. Other states will see the recession came and basically wiped out a good portion of those. The Fed needs tax dollars to offset the loss so the tax basis rise will impact economic growth.

    WHAT ARE TITLE XII LOANS?
    Under Title XII of the Social Security Act, state governments can request loans from the federal government when the state’s unemployment insurance trust funds — built through payroll taxes — have been depleted. The borrowed money is then used to continue paying out unemployment benefits. States then have two years to pay back the loans without penalty. A lot of the COVID stimulus is head to the government. Government bailing out government. This is bad news for the dollar and real bullish for BTC. It will be devasting for any assets in fiat denomination.

    As of October 1, 21 states have borrowed more than $34 billion in Title XII loans. The biggest borrowers include states that are highly populated and have been mismanaged by using lockdowns. Case in point, Gavin Newsome's California as of October 1,has borrowed upwards of $13 billion while New York's mismanager Cuomo is nearing $8 billion, and Texas is closing in on $5 billion. If you live in these STATES, you'd be wise to MOVE RIGHT NOW.

    THE REPAYMENT QUESTION
    After receiving federal loans, states are faced with the question of how to pay back the debt and replenish their own trust funds. Many states will do so by increasing unemployment taxes. Of course, this assumes businesses will come back after the lockdown madness.

    Unemployment tax rates fluctuate based on industry and an individual employer’s history of layoffs. Each state has a varying tax rate schedule that changes year by year based on the amount of money in their unemployment benefit trust funds.

    States have their own mechanism, either by legislation or by automatic tie-ins to the average weekly wage, that control that taxable wage base. As the funds deplete the schedule changes, and that normally means that it goes up. As taxes for people and businesses rise economic growth collapses.

    This is how a recession becomes a DEPRESSION


    Some employers will see tax increases beginning in 2021 as states work to repay loans and replenish their trust funds, and employers will see automatic scheduled increases in federal unemployment taxes in November 2022 if states haven’t repaid their 2020 Treasury loans by the 2-year deadline.

    When you cannot pay your bills back default and devaluation should be expected outcomes. How do you think the S&P index will respond? The bond market? Your home values.........especially in states who bothched COVID?
     
  13. Jack Kruse

    Jack Kruse Administrator

    But for the 25 million folks in the country who are currently unemployed, Labor Day 2021 will be a grim reminder of the employment situation in this country. While Labor Day is intended to be a tribute to the "social and economic achievements of American workers" - historically marked with celebrations in the street by the working class - continued worries about the economy left many with little reason to celebrate if lockdowns persist. And in a twist of irony, a majority of those fortunate enough to have jobs found themselves working - and not celebrating - on a day that wraps one of the busiest retail weekends of the year. Labor day 2021 will likely not see a ton of consumption........as Wall Street predicts.

    The first Labor Day was celebrated 136 years ago in New York City. Oregon became the first state to actually make it a holiday, followed by Colorado, Massachusetts, New Jersey, New York, Connecticut, Nebraska, and Pennsylvania. Over the next ten years, most states had made it a holiday; in 1894, Congress officially made it a federal holiday.

    Interestingly enough, 1894 is also the same year that Congress enacted a flat tax on income, the first income tax Americans were subjected to since the Civil War. The tax was a flat 2% tax imposed on incomes over $4,000 and was meant to relieve "ordinary" Americans from taxes and tariffs on goods. The exempted amount was so high - $104,520.86 in today's dollars - that it was clearly intended to be a tax on the rich. It was, many claimed, just one more step, taken together with the popularity of the labor movement, towards socialism (sound familiar?) Taxes limit the taxpayer's freedoms and liberty. The wise will buy BTC before this Labor day to gain those freedoms back.

    Despite an overwhelming lack of enthusiasm in many circles for the tax, Congress approved it, the first such income tax in peacetime. It would not last long. In 1895, the tax was found to be unconstitutional in the landmark case, Pollock v. Farm Loan and Trust Co. It wasn't the idea of the tax that was found to be unconstitutional but the structure: while skirting the issue of taxes on certain kinds of income, the Supreme Court ruled that taxes derived on income from property - like rents and dividends - were considered direct taxes and would, therefore, have to be apportioned.

    Income derived from wages and salaries were not included in the ruling, having already been declared constitutional.

    With that ruling, Congress went back to the drawing board. It would take nearly 20 years to pass a new income tax law and ratify the 16th amendment, a necessity to pass Constitutional muster. When the law became effective in 1913, it was no longer flat but progressive. After an exemption amount of the same $4,000 as before for married couples ($3,000 for individuals), rates kicked in at 1% and would climb as high as 7% for those taxpayers with incomes in excess of $500,000 ($11,439,656 in today's dollars). The result was that less than 1% of the population paid any income tax at all.

    The following year, despite a relatively low tax burden, the unemployment rate shot up. The trend would happen again in 1915. The rationale of course, for the spike is the global economic consequences of World War I. But moving forward, it should follow that raising tax rates on salaries and wages would affect the unemployment rate. That's always been the cry: Higher taxes destroys job creation. COVID LOCKDOWNS MIMIC THE EFFECT OF A WORLD WAR.

    Any sane person would see it. Does DC? Do Wall Street analysts?
     
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  14. Jack Kruse

    Jack Kruse Administrator

    So what happened in 1935 under FDR?

    The US was in a depression caused by War and Wall Street. Today the defect was caused by COVID LOCKDOWNS.

    What did FDR do?

    He took the publics' gold, and raised taxes.

    He reasoned theory and posits aside, the reality is that the working class must continue to work in order to pay the bills.
    A change in tax rates doesn't compel the working class to work fewer hours, the opposite, however, may be true since those at the top have more flexibility and more options. If it didn't make economic sense for continued employment - think about double-income families, for example - top wage earners could opt-out and some do.

    This line of thinking wasn't lost on President Roosevelt, who in his Message to Congress on Tax Revision on June 19, 1935, proposed steep taxes as the "most effective instrument yet devised to obtain just contribution from those best able to bear it and to avoid placing onerous burdens upon the mass of our people." President Roosevelt said, about his proposals, "Social unrest and a deepening sense of unfairness are dangers to our national life which we must minimize by rigorous methods. People know that vast personal incomes come not only through the effort or ability or luck of those who receive them but also because of the opportunities for the advantage which Government itself contributes. Therefore, the duty rests upon the Government to restrict such incomes by very high taxes."

    Biden seems to following his lead. America in 1935 faced WW2. WW2 ultimately is what ended its unemployment and currency crisis. That is where fiat was linked to gold in Bretton Woods. That was the core of the New Deal. Currency was revalued and pegged to gold but the USA had hyperinflation coming out of WW2 from 1942-1951. See the Fed history on that topic.


    President Roosevelt didn't get everything he wanted that year. But interestingly, as tax rates went up - starting at a top rate of 63% in 1935 and climbing to a top rate of 94% in 1945 - unemployment rates did go down (dropping from about 28% to 3% in that same time frame). Most of this effect was due to the WW2 effect and not taxes. Again the lesson is important. War and devaluation of currency are synonyms for a currency problem. FDR got bailed out by Hitler. It was not his tax plan that solved the problem. I also think the tax problem Biden faces will end up in War or a devaluation.

    I'm not suggesting that raising taxes in 2021 will lower unemployment rates - and goodness knows, nobody wants to see 94% tax rates again! But I would also suggest that historical context matters deeply to future outcomes. Nothing about 1935 is similar to today's debacle.

    The Perfect storm for hyperinflation remains.
     
  15. Jack Kruse

    Jack Kruse Administrator

  16. Jack Kruse

    Jack Kruse Administrator

    What is MMT? = modern monetary theory
    MMY is a theory that says government spending will become the primary lever for boosting the economy during recessions and economic slowdowns would create ever expanding fiscal deficits.

    If taxes are the main mechanism for controlling inflation, then above average inflation will probably be tolerated. Political appetite for raising taxes (in order to lower inflation) is generally pretty low, assuming politicians desire reelection. Politicians prefer the subtle tax of inflation to the obvious tax of higher tax rates. Keep in mind that fiat currency is a liability of the government — thus, inflation which reduces the value of that currency, is a subtle and gradual way to reduce that liability over time. Hyperinflation in this theory is the ideal way to pay off debts you cannot afford.

    This is why the money printing is on.

    Giving governments a blank check is dangerous, rarely have governments proven to be optimal capital allocators.

    It’s true that countries whose debt is primarily denominated in their own currency can’t technically default, but they can definitely devalue their currency by printing too much. And currency devaluation, especially entrenched expectations of currency devaluation, would have material negative impacts to peoples’ net worth and the economy.

    People with fixed salaries, large cash savings, and bonds would suffer, especially relative to those that own hard assets or stocks of companies with pricing power. It would exacerbate the gap between the haves and the have-nots as well as unfairly penalizing the elderly retired who have no choice but to allocate significant money to bonds (due to their lower tolerance for volatility).

    Right now the antidote to MMT for the elderly is BTC. MMT makes fiat too volatile for the elderly.
     
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  17. Jack Kruse

    Jack Kruse Administrator

    The 7 sins that will sink the banking system:
    1. Infinite monetary inflation
    2. Never ending growing debts
    3. An opaque and corrupt banking system
    4. Market manipulation
    5. Censorship
    6. A system that doesn’t evolve
    7. The U.S. dollar as the hegemonic reserve currency
     
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  18. Jack Kruse

    Jack Kruse Administrator

  19. Jack Kruse

    Jack Kruse Administrator

  20. Jack Kruse

    Jack Kruse Administrator

    Banks bought nearly 1/5th of treasury issuance in 2020.........think this normal?
     
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