Judgment Day

This is the eighth post in a series entitled Currency, Money and the Economy.

In the last post, we discussed that central banks were trying to avoid having a superbubble form over the precious metals market. But what happens if that superbubble forms? Well, our government will then have only two choices left:

Deflation
This means popping all the bubbles and squeezing all the air out between the film and glass. Unfortunately, deflation is associated with an economic depression. Stock market crashes, falling house prices, loss of jobs, and all the bad things that come with a depression will become reality. The loss of economic stability may result in political upheaval in lesser developed countries.

Inflation (historical playbook, step 6)
The central banks will attempt to pump as much air as possible between the film and glass such that superbubbles form much faster over the stock, commodity and other investment markets than they do at the center of the glass. However, this becomes a chase your tail dilemma. Your salary might climb from $100,000 to $200,000 in only two years and the Dow Jones average might climb from 10,000 to 30,000. However, the cost of a cup of coffee will rise from $4 to $16 during the same period and gas will cost $20 a gallon.

So which path would you choose? Federal Reserve chair Ben Bernanke has studied the Great Depression and has been quoted as saying he would drop money from helicopters to avoid another deflationary period. So as long as he is Fed chair, he will choose inflation.

It seems logical doesn’t it? Although inflation sounds terrible, it is a better option than political upheaval and mass loss of wealth an economic depression brings with it. However, before you pick your poison, here are two facts to consider:

1) Deflation is the only way the financial system can re-establish equilibrium between the price and value of goods and services. As painful as the Great Depression was, the United States survived and led the world for the next six decades.

2) Every other empire throughout history has chosen to follow step 6 in the historical playbook rather than face deflation. None has survived as a global power. The United States have followed the historical playbook to the letter and now have gone on record to state that they would also follow step 6. One definition of insanity is trying the same thing in the same manner and hoping for a different result.

So what is the timetable of this supposed financial doomsday decision? Unfortunately, if the scenario were to occur, it will most likely be within our own lifetimes. What evidence is there to support this argument? Here's one more fact to ponder. The term M3 currency supply is the largest count of US currency in circulation and used to be reported on a monthly basis. In 2006, the Federal Reserve suddenly stopped reporting this figure for a good reason. Watchdog groups furious with the lack of transparency have carefully pieced back together the formula and by rough estimates, there is approximately $15 trillion in circulation today and growing. In a previous post, I gave you a link to the US debt clock. It now reads $12 trillion. What does that mean? It means we should only have $3 trillion in circulation, but have pumped five times as much into the system to pay for our debts. The buying power of the US dollar has been effectively reduced by 80% thanks to our overspending ways. The only reason this fact is not more readily apparent is because the United States is manipulating its currency in a shell game with other countries. To make matters worse, there is another $107 trillion waiting in the wings for unfunded liabilities expected to take hold by 2040, including Social Security, and Medicare A, B and D. $3 trillion versus $119 trillion in potential debt. It does not take a financial genius to realize we are on the edge of a bottomless abyss.