All, Im still trying to get my head around the concept, but in recent days Fekete and Denninger have described 'inflationary depression' scenarios that are far more complex than the "more money = inflation, falling assets = deflation" debate thats been going around in endless circles in the past few months.
In short, the debt burden is so damned high, incredible amounts of money will be printed in order to pay it all down. But the assets themselves will continue losing their attraction since they are toilet-paper denominated, leaving us with worth-less assets and lots and lots of money (the toilet paper).
This tells me to stick with emergency cash, physical bullion, producing miners with no debt and agriculture.
From Denninger: "...The danger here is that this really is "the last bullet in the gun." If it fails, our currency and political system would appear to many who read this to go down the toilet in a hyperinflationary detonation.
Not so fast grasshopper...
The error in the hyperinflationist scenario is that without being able to couple price increases back into wages they are unsustainable - price increases instead collapse demand. If gasoline goes to $20/gallon you will buy less of it - a lot less - not because you want to, but because you simply don't have the money... In a debt-laden economy the debt percentage (of GDP) continues to rise even as spending drops and a mad dash to try to redeem what debt can be repaid soaks up all available money.
The nightmare scenario that is staring us in the face, right here, right now isn't hyperinflation. It is in fact a collapse of monetary systems driving demand for dollars through the roof in a crescendo of attempted redemptions into collapsed ("no bid") asset prices - a demand that Ben will not be able to meet, as the collateral backing those dollars will have all been exchanged for toilet paper. Whether Bernanke holds all this trash on his balance sheet or manages to scam Treasury into exchanging it for T-bills, the result is the same - there is no collateral behind Bucky and as employment collapses no production to replace it with either.
The mad scramble will be on, and as it happens trade will be choked off by not a collapsing dollar but other currencies collapsing around the world.
Paradoxically, the DX, or dollar index, will skyrocket - not go through the floor - as this plays out."
And from Fekete (thanks Mikebr for your reference to this):
"Not so fast, please. Ultimately the market for Treasury bonds will collapse in a hyperinflationary scenario, but this may be years down the road. In the meantime we have to face the music that keeps the game of musical chairs going: the serial halving of interest rates to enable bond speculators to earn risk-free profits. This stokes the fires of deflation, not the fires of inflation. Obituaries of the dollar are written prematurely."
Denninger ref: http://www.321gold.com/editorials/denninger/denninger032009.html Fekete ref: http://www.professorfekete.com/articles/AEFThereIsMoreWhereThisGiftHasComeFrom.pdf
