March 19, 2009
The Perfect Hyperinflationary Storm
The Federal Reserve's announcement on Wednesday to expand its balance sheet by $1.15 trillion puts our country on a direct path towards hyperinflation.
By spending $300 billion on long-term U.S. Treasuries, $750 billion on worthless mortgage-backed securities, and $100 billion on other federal agency debt; the Federal Reserve will be doing nothing more than printing $1.15 trillion out of thin air, which means Americans are guaranteed to see a sharp decline in the purchasing power of their U.S. Dollars.
Wednesday's news brings total funds allocated by the Federal Reserve and United States Treasury during the financial crisis up to $11.4 trillion and although only $2.8 trillion has so far been spent, we believe the full $11.4 trillion will inevitably be spent.
If the Federal Reserve simply allowed AIG to fail, the free-market would've efficiently reorganized the company in bankruptcy. The $165 million in employee bonus contracts, that Congress has been so eager to express outrage about, would've been wiped out completely. The failure of AIG would not have brought down the U.S. financial system. However, bailing out every financial firm on Wall Street will.
Federal Reserve Chairman Ben Bernanke commented this past weekend on 60 Minutes that our country's biggest risk is we don't have the political will and commitment to solve our current financial problems. We respectfully disagree with Chairman Bernanke and believe our country's biggest risk is hyperinflation, that will come as a result of the Federal Reserve's actions.
Up until now, the United States has been successful at keeping inflation somewhat under control by borrowing the money for much of its spending from China. However, China's Premier of the State Council Wen Jiabao said last week that he is worried about the safety of the U.S. Treasuries they are holding. By China publicly acknowledging their fears, not only is it possible China will stop buying U.S. Treasuries, but they could take advantage of the Federal Reserve buying U.S. Treasuries and use it as an opportunity to sell.
The U.S. Consumer Price Index rose in February by 0.4 percent, which equals an annualized inflation rate of 4.8 percent. We believe inflation would be much higher if it wasn't for all of the temporary factors driving consumer prices down such as the forced liquidations of hedge funds, de-leveraging of banks, going out of business sales of retail stores, etc.
These temporary factors will soon be gone. They are likely to end at the same time as the Federal Reserve begins printing trillions of Dollars and China potentially becomes a net seller of U.S. Treasuries. The perfect storm is ahead for massive inflation to begin in the second half of 2009. Being that our country already has an $11 trillion national debt and $55 trillion in unfunded liabilities for social security, medicare, and other social programs; hyperinflation during the next decade is becoming less the worst case scenario and more the most likely scenario.
Our country's current financial crisis is a walk in the park compared to what is ahead. Despite rapidly rising unemployment rates, Americans today can still purchase very cheap food, clothing, and gas. We can't take this for granted and must prepare for what is ahead.
If you prepare for the worse, the best will always happen. Americans who begin preparing for hyperinflation now, not only could preserve their purchasing power in the years ahead, but could potentially become wealthy as Americans hoarding U.S. Dollars, bonds and other dollar-denominated assets lose everything. We believe there will soon be a Gold, Silver, and Agriculture boom that will make the dot-com and Real Estate booms look small in comparison.