Friday, Jun 11, 2021 – 4:50
Recently, a slew of very prominent stock market analysts, including JP Morgan’s Marko Kolanovic, have stated that US stock markets still have a long way to run and that the current consolidation is signaling another breakout higher. However, these predictions are pure speculation, based upon a guess that the end of lockdowns in the US will spark a continued higher run in US stock markets, even though the lockdowns enforced worldwide last March 2020 were the very reason US stock markets stopped crashing and then reversed for the remainder of 2020. Nowadays, everything is attributed to the reason why US stock markets have continued to rise. Lockdowns, by ensuring interest rates would remain near zero, caused US stock markets to rise last year. Now, Kolanovic says that ending the lockdowns will continue to prop up US stock markets and send them higher. Obviously, both can’t be true.
Speculation is driving US stock markets for now, but when manic speculation stops providing a floor of support, the market will crash. Even if US stock markets eventually melt up due to massive inflation of the US dollar, history tells us that a crash is likely to precede the melt up. Why? As speculation dries up, and it always eventually does, this will cause the dormant risk inherent in the US stock market to suddenly manifest as if it came out nowhere even though it’s been there the entire time. Thus, the slew of “no one saw it coming” headlines that always follow stock market crashes, even though every single person declaring “no one saw it coming” never bothered to dig deep enough to find any clues and assessed the stock market’s future with superficial cues. Any statements that US stock markets still have to rise much higher before they collapse demonstrate a profound lack of proper risk assessment. Even were US stock markets to rocket another 20% from here, which I do not believe will happen, such an outcome would merely be a symptom of a lengthening of the irrationality timeline versus proof of an ongoing sustainable economic recovery, a lie that is often forwarded along with the provision of artificially engineered key economic statistics by speculators to create a high-as-possible exit point for them.
Lastly, wishing for another 20% gain in the US S&P 500 from its current 4,230 status, as some have predicted, makes zero sense from an intellectual and a historical perspective. Intellectually, if the S&P rises above 5,075, this can occur only under two feasible scenarios: (1) massive speculation fuels the last 20% spike higher, a spike that will likely wipe out any apprehension about the US stock market and lure back into the market the very contingency of skeptics, at the worst possible time that can least afford losses in their portfolios, at a time that precedes an epic collapse; or (2) this continuing rise comes on the back of a heavily devaluing US dollar that quickly will devolve into a US stock market melt-up in which US dollar inflation heavily outpaces spectacular nominal gains (but spectacular real net losses) in US stock markets, much like what recently happened with the Caracas Stock Market Index (IBVC) and the Zimbabwe Industrial Index.
Historically, as national currencies heavily inflate and devalue, stock markets tend to experience a crash before a melt up. For example, prior to the German stock market melt up in 1923, the market crashed by 90% from 1918 to 1920 before bottoming at a 97% crash by 1922. The previously mentioned Zimbabwe Industrial Index crashed by 45% from 2014 to 2018 before melting up by 2,040% by 2020 and by 3,140% by May of 2021. Accompanying these two market melt ups were hyperinflations of the German mark and Zimbabwe dollar that are still highly misunderstood today. Economists and historians always mistakenly assign blame of historical hyperinflationary episodes to the bad intent of Central Bankers. While Central Bankers enforce the policies, often for decades, that lay the fertile ground to allow for hyperinflationary episodes, only the common people, not Central Bankers, have the power to trigger hyperinflation.
Though no standard definition of hyperinflation exists, hyperinflation is typically marked by a 50% or greater monthly inflation rate of the underlying currency which accelerates over time and eventually causes the currency to return to its intrinsic value of zero. Americans and all US dollar holders around the world could create a hyperinflationary US dollar event tomorrow if they wanted to do so. Though Central Bankers lay down the groundwork for hyperinflation to occur, hyperinflation is always triggered solely by the people’s rejection of acceptance of the currency for their goods and services. When a fiat currency is completely rejected by the people as legal tender for goods and services, this is when hyperinflation is triggered, and not a day before.
The trigger for hyperinflation is also why hyperinflationary periods, after long periods of significant inflation, sometimes appear “seemingly out of nowhere”, as a quick turning of the tide in public sentiment can precipitate hyperinflation at exceedingly rapid rates for which the majority of people are unprepared. Though most people with a modest academic background in economics studied the hyperinflationary period that happened in Weimer Republic Germany, post WWI, most are still unaware of how severe the hyperinflation of the German mark was despite viewing textbook photos of Germans burning billions of paper marks for warmth because it was cheaper to do so than buying wood. Most are unaware that German workers demanded payment from their employers three times a day, during morning hours after arriving at work, before their lunch break and at the end of the workday before departing the office, simply because they would take each payment and immediately go to the store to buy essential items like food, soap, toothpaste and so on because the prices of these items at the start of each day was far cheaper than their prices at the end of each day, so extreme was the hyperinflationary conditions they endured.
Of course, just as our politicians and bankers are lying to us today about inflation, German politicians and bankers also lied to their citizens in the early 1920s about real rates of inflation which is precisely why hyperinflation, when it happened, caught most Germans completely unprepared to deal with it. German Professor Julius Wolf stated in 1922, just a few months before hyperinflationary conditions were triggered in Germany: “In proportion to the need, less money circulates in Germany now than before the war. This statement may cause surprise, but it is correct. The circulation is now fifteen to twenty times that of pre-war days, whilst prices have risen forty to fifty times.” Apparently, Professor Wolf failed to take any critical thinking and logic classes as he contradicts his own conclusion that less money was in circulation in the German economy post-WWI than pre-WWI by immediately stating that the money in circulation post-WWI was fifteen to twenty times greater than during pre-WWI days. Professor Wolf, a disciple of voodoo economics, declared German mark circulation had decreased significantly post-war after discrediting himself in the same statement, and that no self-respecting German citizen should worry about the hyperinflation that would arrive just a few months later.
Back then, the President of the German Reichsbank central bank, Rudolf Havenstein, also deceived German citizens of the coming hyperinflation by echoing Professor Wolf’s sentiments prior to the hyperinflationary period of 1923. Havenstein publicly denied that the Central Bank had significantly increased the supply of German marks in circulation and even though enough data existed to contradict this lie, the same modus operandus that still works today worked back then – just allow a person in an authoritative position (think Fauci today or the ongoing big media hype about UFO disclosures as proof of intelligent non-human life – it’s not) tell lie after lie after lie, and as long as the spineless media reports it as truth, the unthinking people will embrace all spoken lies as infallible truth.
Today, this same nonsense is happening as “journalists” in cahoots with bankers continue to blame rapidly soaring prices of food around the world on the rising costs of inputs for food production, as if trillions of Central Banker fiat currency creation in Euros, dollars, and yen since the 2008 global financial crisis have zero responsibility in the creation of rising input costs that have contributed to soaring food costs around the world (for the intellectually deficient, Central Banker responsibility for soaring food costs is enormous and the correlation direct). During the hyperinflationary Weimar Republic, in one year, the price of a loaf of bread soared from 160 marks in 1922 to 200 billion marks by 1923.
There are plenty of economists that state hyperinflation in the United States is impossible. Clearly these economists are delusional to not consider this possibility. The creation of US dollars since 2008 by Fed Reserve bankers have already created the fertile conditions necessary to cause a complete loss of confidence in the US dollar worldwide and inside America, which is precisely the trigger for hyperinflationary conditions, especially if another global economic power introduces a currency backed by gold. More than eight years ago, Boston University professor Laurence Kotlikoff calculated the fiscal gap between all projected official government serviceable debt and projected collected taxes, using the projections of the US Congressional Budget Office, and determined that this calculation of $222 trillion was the real US government debt amount. Of course with a fiscal gap of what is surely much greater than $222 trillion in 2021, eight years later, this ensures that the only possible manner by which the US government will not default on its debt obligations, including paying off US treasury debt, is to create trillions of excess dollars out of thin air to service this otherwise unpayable debt amount. This all but ensures that US Central Bankers will keep the grounds fertile for USD hyperinflation scenarios for many years to come.
How quickly we completely forget the 2015 six-sigma “impossible” statistical event that happened with Swiss franc: Euro forex rates, with the Swiss franc strengthening by 33% in just hours versus the Euro, precisely because of the of the Swiss franc. By mandate of the Swiss constitution, the Swiss franc was officially backed 40% by gold, and then lowered to 25% in 1997. Between 2000 and 2005, the Swiss National Bank (SNB) sold off 1,300 metric tonnes of its gold and in 2007 and 2008 it sold an additional 250 tonnes, decreasing its total gold holdings from 2,590 tonnes to just 1,040 tonnes. In 2014 the people introduced a referendum that attempted to restore unofficial backing of the Swiss franc with gold by mandating the Swiss National Bank hold 20% of all assets in gold, but the referendum failed. Even, despite the significant gold selling between 2000 and 2008, many still viewed the Swiss franc as unofficially backed by gold due to its long history of being backed by gold. Thus, when the cap of Swiss franc strength to the Euro was removed in 2015, the historical perception of the Swiss franc as one of the strongest currencies in the world caused it to extraordinarily soar against the Euro.
Even today, the collapsing velocity of M2 money stock is oversold as the reason why USD hyperinflation can never occur. Imagine now, if a nation in the future, unofficially backs its currency with gold through similar constitutional laws. It is easy to understand the massive volatility in that currency’s exchange rates with the US dollar that would occur under such circumstances and the negative effect such an announcement would have on US dollar purchasing power. To say such an event could never happen and that US dollar hyperinflation as a consequence is impossible is therefore, a declaration of utter foolishness. If such a scenario developed, the monetary velocity of the USD inside America would be irrelevant to the world’s loss of confidence in the USD and a potential hyperinflationary collapse. In global currency wars, anything is possible. The only unwavering constant, given the reviewed history above, is that Central Bankers will always tell us the complete opposite accounting of truth and the steps we must take to protect our wealth from complete collapse in the event of a hyperinflationary event.