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Dismantling John Williams’ Hyperinflation Predictions

Economics / HyperInflation Feb 01, 2011 - 02:31 AM GMT

By: Mike_Stathis


Diamond Rated - Best Financial Markets Analysis ArticleIf you look around on the various gold bug web sites, you are likely to see the same crowd posting the same lines of hyperinflation and everything else they can conjure up in order to scare people into loading up on excessive amounts of physical gold. Note the emphasis on “physical gold” rather than gold ETFs.

Never mind that gold has very little utility. Never mind that physical gold is not considered a liquid asset. Never mind that gold hacks are financially tied into rising gold prices and therefore have a financial interest in pumping up the price of gold. You should buy gold and hold it because it’s going to continue to rise in price as the end of the dollar nears, right?  Not so fast.

Recently, I discussed one key aspect of the gold story no one has ever mentioned…

Remember, gold dealers make a living by selling gold rather than buy and holding onto it. This activity is contrary to what one would expect if gold dealers really felt that gold will continue to rise in price. Thus, at the same time dealers are advising you to buy physical gold and hold it long-term, they are buying and selling it. In doing so, dealers are not only taking advantage of the price volatility, they are also maintaining a very liquid position in gold because they realize that one of these price corrections will represent the beginning of the end of the gold bull market. This means they are making money trading gold short-term, which reduces their risk, all while advising you to use a buy-and-hold strategy. 


Moreover, those who make money from gold ads and commercials aren’t spending that money buying gold. Thus, those who own gold must keep these points in mind whenever they hear ridiculous predictions like the end of the dollar and hyperinflation as support for gold price “forecasts” because the best way to make money from gold is to sell it, or else sell the idea that the price of gold has no ceiling.” [1]

While most gold bugs preach myths and exaggerate the macroeconomic picture as a result of misguided views from their sources, others have been fueled by a more intentional motive when disseminating their marketing campaign for gold.

The fact that tens of thousands of gold bugs agree that gold offers “protection against inflation” and the “inevitable and permanent collapse of the dollar” should serve as sufficient impetus for you to covert all or at least a good deal of your investment capital and savings into gold bullion, right? Not if you truly understand the full picture. I previously discussed the proper use of gold and silver in another recent article. [2]

It would appear that a great deal of individuals who own gold and silver have a poor understanding of macroeconomics and investments. This is the target audience the gold hacks have focused on because it represents an easy sales pitch as you can imagine.

Some of these individuals don’t have much of an investment portfolio consisting of stocks because they don’t have much savings to invest. Others have lost all faith in the integrity of the U.S. capital markets, so they don’t want to risk losing more than they already have. As a result, many of these individuals have a sizable portion of their entire investment portfolio in precious metals. Needless to say, this is a very dangerous move because gold will not remain above $1000 forever. When the gold bull market ends, it is likely to end without much warning.

Loading up on gold at current prices is even a very dangerous move for sophisticated investors who realize the gold bull market will not last forever. While they think they will be able to unload gold prior to it collapse, history shows that most people are likely to get stuck holding the bag when it empties.

Ever since the financial crisis, thousands of gold hacks have propagated greatly exaggerated and misguided views of the U.S. economy so as to heighten widespread panic. They have insisted that the U.S. will soon encounter a period of hyperinflation that will make the dollar virtually worthless. And they have positioned gold as the solution to the dollar’s demise. Indeed, it has been a boon for conspiracy figures from radio and television, as they have convinced their frustrated and confused audience that Armageddon in the U.S. is not far away. [3]

Everywhere you turn you’re likely to run across these hacks, as they’re propaganda has infected virtually every website in some form or another, whether through gold ads and economic articles, YouTube videos, or interviews from gold hacks in print and broadcast media.

While the U.S. economy is certainly in bad shape, it’s not as bad as gold hacks and perpetual doomers would have you believe. Over the past couple of years, I detailed the state of the U.S. economy on several occasions. [4] [5] [6] [7] [8] [9] [10] [11

Prior to the economic fallout, I wrote a 500-page analysis in 2006 (America’s Financial Apocalypse) to support my claims that the U.S. would face a depression spearheaded by a collapse in the real estate bubble, so it’s not as if I think things are rosy. Furthermore, in this book I also forecast gold to head to $1400 with a good deal of certainty, and potentially higher thereafter. Thus, no one can make the claim that I am a gold “basher.” 

Through my experience managing assets on Wall Street, as well as my work in the venture capital industry, I feel I have a pretty good understanding of valuation, risk, and the relationship each shares with the other. However, you don’t exactly need to be an expert in valuation or risk management to understand this relationship. It’s quite simple. The higher an asset price rises, the higher the risk becomes. This is especially the case for assets that possess very little intrinsic value, such as the case with gold. 

But forget about my views for a moment. After all, I’m not one of the “experts” designated by the media, so you don’t see me plastered all over the financial networks. So how could anything I say hold much credibility? If that is the basis of your conclusions then you really have no idea how the media works. I have discussed how the media intentionally dupes its audience on numerous occasions. [12]

Only on rare occasion will you find accurate and unbiased investment guidance from the financial media. Instead, the media opts to air a regular selection of individuals from its pool of extremists and marketing professionals who have been positioned as investment experts. The media covers both extremes, from the perma-bulls to the perma-bears. The only problem with this approach is that extreme views are never profitable over the long haul because things change. Thus, knowing when to shift gears is of vital importance.

We all know how the media is filled with perma-bulls. This extreme view represents the main theme of the financial media because this is how the media makes most of its money through promoting the agendas of Wall Street. But the media has also formed a strong bond with perma-bears because this strategy not only offers another source of ad revenues, it also serves to convince its audience that they are giving you both sides of the picture.

The only problem is that extreme views, whether they are aligned with the bull market or bear market mentality will lead to losses more than gains. When we examine the propaganda from gold bugs and perma-bears, this is all too obvious. For instance, Marc Faber has gone on record as stating he is 100% certain that the U.S. will experience hyperinflation. Moreover, he has even stated that gold will never again fall below $1000. [13]

Note that the media source that conducted this interview (the Business Insider) refers to him as a guru. That should tell you all you need to know about the Business Insider. It’s a common trick used by the media. They want you to think they are providing you with value so they will always position those they interview as experts despite the fact that very rarely does this turn out to be the case. The most important ingredient one can use to determine credibility is to examine a person’s track record. This is something the media never does when selecting its “experts.” [14] [15] [16] [17]

Once you take a good look at Faber’s track record, you might agree his credibility is in question at best. Like his perma-bear peers, Faber has been calling for doom year after year. And because every economy has good times as well as bad, his predictions have very little meaning. Similar to other perma-bears, Faber is like the pig who cried wolf.

This barrage of gold propaganda and doom over the past couple of years has set the stage for predictions of gold soaring to the moon, with forecasts such as $5000, $10,000 and even $20,000 per ounce. Many others who propagate similar exaggerations are gold dealers, like Peter Schiff. Schiff has gone on record “predicting” that gold would hit $10,000 per ounce and perhaps even higher.

I can tell you this. The only way gold would hit $10,000 an ounce is if all of these gold hacks convince enough people that it will to the extent that they buy enough gold to drive the price to $10,000. Nothing else will drive the price of gold to this level. It is impossible to forecast gold prices based on valuation metrics since it has very little if inherent value.

Gold bugs have been trying to scare people and infect them with greed so they will buy gold and raise the price. Thus, rather than predictions, these wild claims serve only to function as a self-fulfilling prophecy. Even some of the gold dealers who stand to benefit from soaring gold prices think Schiff’s forecasts of $5000 and $10,000 are ridiculous.

Will gold head to $2000 per ounce? It’s certainly quite possible. What about $2500? That too is a possibility. For prudent investors, the most important question is not how high the price of gold will rise, but when to exit gold because when the gold bull market ends, the price will collapse and remain low for many years. Prudent investors focus on valuation and risk in order to create entry and exit strategies because this forms the basis of a responsible investment management process.

Regardless how high gold rises, the rise in price has nothing to do with real investment dynamics. It’s pure speculation. Sophisticated investors understand this. In my opinion, the gold pumping campaign resembles a pyramid scheme whereby gold dealers profit, along with those who bought gold earlier in the bull market. Meanwhile, most of the people buying gold at these levels stand to lose money down the road because they have no exit strategy. They have been convinced that gold will remain above $1000 per ounce forever. This assumption is not valid and is likely to cost many people a lot of money.

The pumping of gold seems to have no limits. The following video features another gold hack who predicts gold to soar to at least $15,000. I find it ironic that interviewed this individual. If you don’t already know the reality behind, I suggest you get up to speed. [18]

Others who receive indirect forms of compensation in exchange for pumping gold have made similar “predictions.” The same can be said of their credibility in my opinion. Remember, not only does timing matter, but the fine details are also very important. That means you cannot claim to have predicted much of anything when you have been saying the same thing for 15 years, because as we all know, eventually it rains even in the dessert.

If you have been listening to those who have preached doom for many years, you missed out on tremendous gains. Even when the collapse occurred, if you had listened to the investment advice these individuals provided, you are likely to have lost more than those who remained in the stock market.

The bottom line is simple. If you are not able to get things right in a manner that leads to net investment gains, then you are better off with a buy-and-hold investment strategy.

In reality, gold bugs are not offering legitimate predictions. They are trying to create a self-fulfilling prophecy. You see, because there is no way to value gold using accepted forms of valuation, the price is determined solely by perceived value, which is itself based on the anticipation of price appreciation. So if all of the gold bugs keep telling you that gold will reach $5000 or even $10,000 all while creating doomsday scenarios, it just might reach $5000, but only if YOU make it happen. That’s not investing. It’s speculating because such price levels are not sustainable, nor are they based on valid economic fundamentals.

In practice, many gold bugs are involved in what I feel resembles penny stock pump-and-dump scams. You’re probably familiar with how these scams work. I see them almost everyday. A wave of propaganda is pumped out to unsophisticated investors who believe the hype and exaggerations by stock promoters. And while these worthless stocks sometimes rise substantially in price, the party usually ends without warning, leaving most people stuck holding the bag after it has emptied. One invariable characteristic of these scams is that the promoters never discuss the risk.

Tens of thousands of individuals and hundreds of gold dealers are involved in the movement to pump up the price gold because their bank accounts swell as more people buy it. But one does not need to be a gold dealer in order to cash in on this gravy train. In many cases, just being a gold hack can make you a good deal of money in the form of gold ads on websites.

My advice to you is this. If you do not see articles or interviews about gold that discuss the other sides of the picture by unbiased experts, you should stay away from these media sources. Investors must learn to recognize when a financial show or website serves as a cheerleading session versus a source of open debate and unbiased analysis. While many televised and radio shows are disguised as an open debate, the reality is much different. The often one-sided picture painted on most websites is much more obvious to those with an objective mindset.

Back in early 2008, John Williams predicted the U.S. would experience hyperinflation by 2010. Williams’ predictions of hyperinflation predated this period. Of course, 2010 came and went without any signs of hyperinflation.

Recently Williams updated his report and is calling for the same in 2011, but adds it will certainly come no later than 2014. For the remainder of this piece, we will examine this report.

Let’s have a look at a couple of Williams’ statements.

“Risks are high for the hyperinflation beginning to break in the year ahead; it likely cannot be avoided beyond 2014.”

“…risks are particularly high of the hyperinflation crisis breaking within the next year.”

I recall several gold hacks preaching the same lines over and over, all while predicting gold would reach $5000 by 2010. Other gold hacks warned about a complete collapse of the economy by the end of 2009, then 2010. Many of these same individuals are saying the same thing about 2011.

Those who have listened to these hacks have missed out on more than 85% gains from the largest stock market rally since the Great Depression. While I realize the economy is not improving in an absolute sense, I have kept my clients in the U.S. stock market ever since recommending a buy when the Dow reached 6500 in March 2009. [19] [20]

Most likely the gold hacks will continue to say the same thing next year and the year after, over and over until people finally realize the sewer of doom caused them to miss out on lucrative investment opportunities. If you have been paying attention to the media, you know who these individuals are. But they are also infested throughout the Internet.

Williams goes on to link the rise in the price of gold with a declining dollar. While this relationship is partially valid, it is not as clear-cut or consistent as he and other gold bugs have claimed. A much more direct relationship exists between a declining dollar and rising oil prices. This is something all top Wall Street professionals realize.  I will get back to this relationship later.

When I first stumbled upon Williams’ report, thoughts of the late Matt Simmons immediately came to mind. As you might recall, Simmons was known as an “expert” and maverick from the oil industry who wrote a book about peak oil that caught on with many oil bugs. Simmons was certainly not alone in his predictions of rising oil prices. Many others made similar forecasts. However, Simmons’ forecasts failed to include key drivers of oil demand, namely that of Southeast Asia. As a result, Simmons approached his thesis from a near-sighted standpoint rather than a big picture perspective. Thus, from an economic and investment perspective, I was not impressed by this book.

Prior to his recent and sudden departure, you might recall Simmons’ wild predictions that British Petroleum wouldn’t make it through the summer and would definitely file for bankruptcy. [21]

Even the oil services research firm he founded disagreed with his analysis and upgraded the stock after his ridiculous statements. [22]

When it comes to gold we have seen the same song and dance. Forget about credibility as demonstrated by a person’s track record; forget about the fact that many of these gold bugs have financial agendas tied to their “predictions” of hyperinflation, and myths that gold serves as a hedge against inflation. All that matters to gold hacks is that they generate publicity so that they can make money selling gold, securities, gold-related books and newsletters, or making speaking appearances at gold investment conferences.

In fact, Peter Schiff, Marc Faber and other members of the media club have hit the public speaking circuit, charging thousands of dollars for appearances. The question you need to ask yourself is this. Do credible investment strategists spend most of their time at speaking events, giving interviews in the media, making daily YouTube videos and pumping articles to hundreds of websites, or do they spend it doing research? I spend most of my time doing research and submitting it to my clients.

The tremendous financial opportunities that come with media exposure account for strict adherence to the rules set forth by the media. These rules basically state that “you cannot expose the truth about our sponsors, and you cannot let our audience know that we are liars and jug heads.” 

Everyone you see interviewed by the media goes along with this code of conduct because they want free publicity. If the media has any reason to believe that you will violate this code of conduct, you will be banned. This is how the game is played. It explains why you have never heard anyone from the major networks in the U.S. raise the issue of why not one of the Wall Street executives has been indicted for committing blatant securities fraud that resulted in the collapse of the global economy. Rather than a source of unbiased news and insight, the U.S. media serves as a whore for corporate, Wall Street and government interests. The sooner you realize this, the better off you will be.

In the past I have discussed the fact that hyperinflation is not a possibility in the U.S., at least in our lifetime. I addressed this topic because I felt the need to act responsibly in attempt to caution amateur and professional investors alike, who have been bombarded by this propaganda. Unlike others who preach the opposite, I have nothing to gain by alerting Main Street to these realities other than the satisfaction knowing that I helped investors avoid huge losses. [23] [24]

Before I dismantle Williams’ hyperinflation prediction, I think it’s important to consider a few things about me.

First, I am not a deflationist. This designation comprises a large category of extremists who have insisted that the U.S. has been in a deflationary environment since 2008 (mostly amateurs writing blogs), and academic economists who warn either warn of deflation, or else have concluded that the U.S. is closer to deflation than inflation.

Second, I made predictions of an inflationary depression in America’s Financial Apocalypse. I came to this conclusion because I felt the Federal Reserve would continue to try to print its way out of the mess as it had in the past. In my opinion, there was no way the Fed would permit deflation of any significant duration. As well, I studied inflation trends and other data prior to forming my conclusion.

I stated that if things got really bad the U.S. would experience periods of deflation. But the longer-term trend would be that of massive inflation, which is much different than hyperinflation. Other than brief deflationary periods which follow crises (which we saw in late 2008 and early 2009), the Fed has at its disposal the ability to flood banks with money. This would prevent a lasting period of deflation. This is the Fed’s game plan. But the Fed’s debasement of the dollar will not lead to hyperinflation.

I might end up being wrong about the duration of deflation we are likely to encounter over the next several years, although I do not (currently) anticipate this to be likely. But I can tell you I am 100% confident that the U.S. will not enter hyperinflation, at least in our lifetime.

You might want to compare my track record with Faber’s, Schiff’s or anyone else who has made these claims before you decide whose “100%” is likely to be valid. But don’t forget to account for those of us who may or may not have financial agendas tied to the price of gold and the absolute and permanent collapse of the dollar. If you are not closely monitoring track records and agendas, you’re walking into a landmine thinking you’ve been given a safe route by guys who face no danger.

Third, I am not an inflationist. I have no agenda for holding firmly onto my forecasts for inflation. Unlike others, I am not pitching an investment strategy that relies on sticking with an underlying macroeconomic theme. I am not a salesman. I report what I see based on the continuous research I conduct. If I determine that hyperinflation will become a possibility, I will state this to be the case.

Fourth, I do not sell gold or silver and I do not receive any compensation for gold, silver or any other ads. Moreover, I do not sell securities. Thus, my views on inflation and deflation are untainted. In fact, many of my investment recommendations stand to perform much better if the U.S. experiences hyperinflation. My only goal is to navigate the economic environment and capital markets in a manner that positions my clients ahead of the curve.

If the Federal Reserve is determined to print its way out of this depression, why won’t hyperinflation occur in the U.S.? 

First, with very rare exception, hyperinflation has been the worst economic consequence of destabilized (politically and/or economically) second and third world nations. While the U.S. certainly has a good deal of issues to resolve, it is very far from resembling a destabilized second or third world nation.

Second, in order to experience hyperinflation a nation must flood astronomical amounts of currency into the banking system rapidly and continuously. Conservatively, I would define hyperinflation as a long duration of increasing levels of inflation at 30% to 40% per month. Many others have defined it at higher levels.

Moreover, this flood of currency must be made widely available to consumers and businesses so that demand for goods is dwarfed by the available supply. As we know, despite the printing of currency over the past two years, very little has reached consumers and businesses. Finally, this demand must continue to increase each month at a very high rate.

Although U.S. banks have not provided credit to businesses and consumers in proportion to the amount that has been issued by the Federal Reserve, inflation has been increasing throughout the globe due various stimulus packages, the carry trade and other forms of speculation by banks and other financial institutions. But still, we do not even see any sign of massive inflation at this stage, although I feel it is very likely in the future.

What is the definition of massive inflation?

It depends on who you ask and the nation under consideration. In my opinion, massive inflation would resemble what the U.S. faced in the late 1970s and early 1980s, which is not even in the same universe as hyperinflation. Alternatively, we could experience a more protracted but less severe period of inflation. Either way, hyperinflation in the U.S. is not a reasonable possibility in our life time.

Third, the Federal Reserve is able to print an excessive amount of currency without creating a proportionate increase in the inflation rate because of two factors. First, the U.S. runs trade deficits with much of the world. This is especially the case with Asia.  This alone serves to export inflation out of the U.S. This dynamic is aided by the dollar-oil link. Second, China’s currency peg has actually diminished the chances of a hyperinflationary event in the U.S. While China will eventually lift this peg, it will be a gradual process. Even if both of these relationships were to change abruptly, they would not lead to hyperinflation.  


The principal force making hyperinflation a virtual impossibility in the U.S. is the dollar-oil link. As a consequence of this link, it could be argued that the dollar is not exactly a true fiat currency. At the same time, the dollar is not backed by a finite asset directly under its possession, although the Saudis realize that any threat to decouple the dollar from oil sales would be met with very severe and immediate consequences. Therefore, the U.S. has a good deal of influence in maintaining this vital economic link.

Regardless whether or not you consider the dollar a true or partial fiat currency, the end result remains the same. The dollar-oil link enables the U.S. to print an excessive amount of currency without a proportionate increase in inflation. Since the dollar is used to buy oil throughout the world, the U.S. actually exports a good deal of the inflation created by the Federal Reserve. Similar to others who fail to understand the importance of the dollar-oil link, Williams concludes that the fiat currency in the U.S. combined with the reckless actions of the Federal Reserve will lead to hyperinflation.

“With the creation of massive amounts of new fiat dollars (not backed by gold or silver) will come the eventual destruction of the value of the U.S. dollar and related dollar-denominated paper assets.” (p.4 paragraph 1)

Large amounts of inflation, such as that seen during the late 1970s and early 1980s can be managed through prudent monetary policies of the Federal Reserve. Hyperinflation, by contrast signals the end of the currency. While I feel the dollar still has a considerable amount of downside over the next few years, it isn’t destined for use as toilet paper unless Washington and the Fed decide this as its fate. And if you believe that to be the case, you’re likely to be a bit too conspiratorial for your own good.

Let’s consider some additional points that add to this argument. The U.S. has the most powerful and aggressive military force in the world combined with the most advanced technological resources money can buy. No one can dispute that. In the end, the currency of a nation is not only backed by the perception of a nation’s ability to repay its creditors, but also by the ability of these creditors to force the indebted nation to repay its loans.

In addition to the very strong link between the dollar and oil, the dollar is also linked to commodities markets worldwide. That means is that you cannot buy commodities without the dollar. This too has made the dollar the world’s universal currency. Without the dollar’s link to commodities, the U.S. would surely experience extraordinarily high levels of inflation. The extent of inflation would depend not only on the Federal Reserve’s monetary response, but also the response of the U.S. military.

Thus, due to the dollar-oil link, it is the Middle East rather than China that ultimately controls the U.S. economy. The members of OPEC know this. Accordingly, if the dollar-oil link were threatened, Washington would send troops to Saudi Arabia immediately, and the Saudi Royal family is well aware of this.

The vital importance of the dollar-oil link to the U.S. economy explains why Iran has formed its own oil exchange opting for other currencies, and has tried (without any level of success) to encourage other OPEC members to do the same. Saddam Hussein did the same thing in 2000, requiring payment in euro for Iraq’s oil. And we saw what happened to him. As you might imagine, Iran’s efforts to severe the dollar-oil link have served as the primary impetus for Washington’s campaign to find a way to justify military actions against Iran.

Finally, if for whatever reason the dollar-oil link were severed or even weakened, the Federal Reserve would alter monetary policy to adjust to the more vulnerable position of the dollar. Incidentally, quantitative easing represents one of the ways the Fed is positioning to protect against the possibility of a global dump of dollars.

To support his prediction of hyperinflation, Williams first points to numerous events in the past. He implies these events serve as evidence of the misguided path taken by the Federal Reserve.

“…Recognizing that the U.S. economy was sagging under the weight of structural changes created by government trade, regulatory and social policies -- policies that limited real consumer income growth -- Mr. Greenspan played along with the political and banking systems. He made policy decisions to steal economic activity from the future, fueling economic growth of the last decade largely through debt expansion... Complicit in this broad malfeasance was the U.S. government, including both major political parties in successive Administrations and Congresses. As with consumers, the federal government could not make ends meet while appeasing that portion of the electorate that could be kept docile by ever-expanding government programs and increasing government spending. The solution was ever-expanding federal debt and deficits.” (p.2, paragraphs 2-4)


“The U.S. economy is in a deepening structural change that has resulted from U.S. trade, social and regulatory policies driving a goodly portion of the U.S. manufacturing and technology base offshore. As a result, a large number of related, high paying jobs have disappeared for U.S. workers. Accordingly, U.S. consumers have found increasingly that their household incomes fail to keep up with inflation. Without real growth in income, there cannot be sustained economic growth...” (p.13, paragraph 2)


While the statements made by Williams are largely true, his hyperinflationary scenario is not valid. Among his other poorly-formed arguments, Williams bases this scenario on the assumption that nothing will ever be done to curb spending, cut entitlements and raise taxes. These are predictions I laid forth in America’s Financial Apocalypse. While these actions will certainly have negative ramifications for economic growth and living standards, they represent a good portion of the required changes; changes that will definitely be made.  


Williams goes on to conclude that the U.S. will face a hyperinflationary great depression. He claims this will cause a “likely realignment of the U.S. political environment.” (p.2, paragraph 1)


What Williams fails to understand is that there will be no political system collapse as long as the media is able to keep Americans brainwashed to think they have a real democracy. In reality, the U.S. political system has resembled a fascist regime for several decades. The latest example of the media’s control over Americans can be seen by the farce of the Tea Party movement, which gone from being a group of angry Americans that sought to fight against the Washington mafia, to a group of largely republican supporters.


I summed up the current state of the U.S. in a recent article discussing America’s Second Great Depression…


“Regardless who is in office, these criminally destructive policies will continue as one would expect with any fascist nation. Although the definition of fascism is not clearly agreed upon by many authorities, I use the definition embraced by Benito Mussolini, which attributes fascism as a partnership between government and corporations. This is similar to corporatism, a political system whereby legislative authority is provided to corporate bodies representing economic, industrial and professional groups. Rather than the people, these corporate bodies dictate the laws of the nation.


This is precisely what we see in the U.S., with CEOs of the Fortune 50 wielding more power than any senator or congressman. Corporations exert their control over Washington via huge sums of money shuttled to politicians by lobbyists. Moreover, the corporate giants provide Washington with often illegal if not unconstitutional access to the nation’s backbone, whether it is in the telecommunications, railway and air transport, or banking sectors. In return for these favors, Washington permits these corporate giants to engage in monopolistic expansions, thereby destroying small businesses, in order to eliminate competition so that they gain complete control over pricing of their goods and services.” [25]


A great depression has in my opinion already commenced. However, it will be an inflationary depression, as opposed to one caused by hyperinflation. This depression is not purely a consequence of the financial crisis, nor is it due to the inherent weakness of the dollar. It is a complex myriad of chronic problems that have accumulated over many years. While Williams lists many of these problems (trade, healthcare, entitlements, income disparity, etc.) he fails to make the necessary links. Therefore, in my opinion he fails to understand the full complexity and unique characteristics of this depression. As well, his conclusions are based on the assumption that Washington will never make the required changes.


Williams insists that a “massive economic collapse” will push America into a “hyperinflationary depression.” We already witnessed a massive economic collapse in 2008. But further economic demise is not likely to come in the form of a collapse per se, but rather through less conspicuous forces.


Washington and the Federal Reserve will do all that’s required to prevent another collapse similar to the magnitude we experienced in 2008. However, these actions will serve to spread the effects of this depression over many years if not decades. While the severity of this depression will be contained in any given year, its duration will be very long. In short, the U.S. faces a silent depression as I have discussed in the past.


Next, Williams describes a hyperinflationary scenario consisting of one of the most severe and rapid elevations of inflation seen in centuries. He attributes this scenario to the historical precedent faced by fiat currencies. What Williams fails to mention is that currencies backed by gold have also collapsed.

“The circumstance envisioned ahead is not one of double- or triple- digit annual inflation, but more along the lines of seven- to 10-digit inflation seen in other circumstances during the last century. Under such circumstances, the currency in question becomes worthless, as seen in Germany (Weimar Republic) in the early 1920s, in Hungary after World War II, in the dismembered Yugoslavia of the early 1990s and most recently, in Zimbabwe where the pace of hyperinflation may have been the most extreme ever seen. The historical culprit generally has been the use of fiat currencies -- currencies with no hard-asset backing such as gold -- and the resulting massive printing of currency that the issuing authority needed to support its spending, when it did not have the ability, otherwise, to raise enough money for its perceived needs, through taxes or other means.” (p.5, paragraph 2-3)

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By Mike Stathis

Copyright © 2010. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.


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01 Feb 11, 10:02
Dismantling John Williams’ Hyperinflation Predictions

John Williams’ Hyperinflation Predictions are correct, but his timing is poor.

As a so called 'goldbug' who has been buying gold since it cost $340, I am sitting on fat profits and staying the course, as long as the economy heads for the dumpsters, as it is for now.

As soon as the economic landscape will revert to true production, NOT sustained but higher levels of debts and endless money printing, I will gladly switch my investments into other asset classes.

Shelby Moore
01 Feb 11, 11:53
No bubble in gold&silver

Mr. Stathis, when you slander us as "hacks", are you jealous that gold&silver have risen consistently since 2009, when you've been predicting they would peak and fall? Do you need me to go quote your past articles?

Stathis wrote:

"conjure up in order to scare people into loading up on excessive amounts of physical gold"

Eric Sprott interview explains there is no gold bubble, and silver is in a squeeze:$50_Silver,_Gold_Possibly_$2,150_by_Spring.html

Stathis wrote:

"those who make money from gold ads and commercials aren’t spending that money buying gold"

I know for a fact that is a false. is reinvesting profits back into more metal, mostly silver.

Stathis wrote:

"Needless to say, this is a very dangerous move because gold will not remain above $1000 forever."

I find that statement to be ludicrous to an extreme. We had $trillions in monetary inflation and yet you think gold can go backwards. This is because you don't understand it is not inflation nor low interest rates that drive gold higher, it is the combination of the two. When real interest rates are negative, gold goes higher. It is impossible for the bankrupt western nations to have a positive real interest rate. In the USA our true inflation is running about 5 - 6%, and with $15 trillion in national debt, a positive real interest rate of 3% would make the nominal interest rate 10%, which means $1.5 trillion per year in interest payments on the national debt. But the taxes collected is less than $2 trillion. There would be no money left for running the government. The entire USA and globe would collapse. So we can never get to positive real interest rates again on this financial system. Impossible. That is why gold and silver won't stop going up, until they back the reserve currency with gold again. Worse yet, the actual inflation rate in USA is 10+%. The govt's data hides the fact that all the products we buy in the grocery store have been downsized by 10% in past year. had a nice story on that.

Stathis wrote:

"Those who have listened to these hacks have missed out on more than 85% gains from the largest stock market rally since the Great Depression."

Wrong. I bought silver at $9 in 2009, and silver has risen by +233%, blowing away your puny +85% gains in stocks.

01 Feb 11, 13:42
The only way to halt the gold bull

Mike, the only thing to halt the gold bull market is a significant increase in real interest rates. Real interest rates must be at least 4-5% to break the back of gold. (You may say "real interest rates are determined by bogus government statistics, so I don't care it." Yes, government statistics are bogus but ordinary people care the headline inflation numbers.) The cost of an increase in short term interest rates by 5-6% is roughly $600-700 billion per year for US banking system, in other words it is the declaration of the death of financial system. Volcker had done it at the beginning of the 1980s, but today's America is far weaker from A to Z than 1980's America. In order for the US economy to really recover, the excessive debt must be wiped out. This huge debt burden cannot be paid back in today's dollars' purchasing power. The system needs bankruptcies, defaults, debt restructuring, debt-equity conversion and most importantly currency depreciation. Only after the excessive debt is wiped out we can see more realistic interest rates and a stable financial system.

I am not a gold bug but I think the introduction of gold as a monetary asset would be a very useful event. Sooner or later we will face precious metals shortages. Make no mistake, gold is still the #1 reserve currency of the world. China, Russia, India want it, the price of gold is not important for these sovereign states, how much gold they possess matters. Precious metals shortages will trigger the interest rates in an upward manner. So to avoid this inevitable outcome, gold must be accepted as a currency in classical terms, namely gold must be deposited in banks and it must pay interest.

Even at the height of the financial crisis we will surely use dollars, euros, pounds etc. to meet ordinary life's necessities cos they are bad money. Since gold is good money it won't circulate in the economy unless we are obliged to sell, it will be hoarded and hidden. I agree with you, as long as oil and basic commodities are priced in US dollars, dollars and other dollar based currencies will circulate. Hyperinflation is always a local phemomenon and it is dependent upon political developments not macroeconomic ones. In short, rampant inflation is inevitable.

Ron Smyth
01 Feb 11, 17:05
Dismantling John Williams’ Hyperinflation Predictions

Anyone who can say with a straight face that gold is not considered to be a liquid asset cannot be taken seriously. There is a reason why Central Banks hold part of their reserves in the form of gold, and it is not because they are distracted by shiny objects.

Shelby Moore
01 Feb 11, 20:29
Govt inflation data is flawed

10 grocery products 20% smaller for the same price:

What inflation? Just make it smaller, but hide it:

So the point is that to REAL positive interest rates, is going to take nominal rates in the real of 20+%, which no western nation can survive fiscally.

For example, in USA with $15 trillion of debt, 20% is $3 trillion a year in interest payments, but the USA collects less than $2 trillion in taxes. And then how do you run the government on $-1 trillion? So the governments would borrow more, which would cause the inflation rate to go even higher, it is a spiral that has no solution.

But the end game is very simple to understand. The wise people will buy gold & silver, and the rest will be bankrupted. Sorry to say, but that is the fact. It may just take some people a little time to figure it out.

Have you seen the Silver Eagle sales in USA for month of January? Unfreakinbelievable! 6 million oz in 1 month. It is more than 50% higher than any other month in history.

The end game is rapidly approaching. You've got to be crazy to keep your money in fiat or a bank. They (including the government banking insurance) are all bankrupt. It is a clicking time bomb.

Rather deal your silver and gold, and gain +15% a year in ounces, whilest keeping your networth in metal at all times.

pat smith
02 Feb 11, 19:25

You are to sure of yourself and do not seem to fond of goldbugs which apparently, is anyone that buys gold. I know a few dealers and know 2 things that you do not; they have their own stash and are smart people that deal in the reality of the gold market. Gold has no intrinsic value? What a stupid comment to make. Hyperinflation is not the point, continuous inflation is. I guess over a certain span of time, it can seem hyper. I do not project future gold prices, I just deal with the current war of fiat money versus precious metals money. I have been on the correct side of money for the last ten years. Have you?

Brian Thiesen
02 Feb 11, 22:49
Mike and Shelby

It is all well and good to rebutt, but what did you actually rebutt or even say or even try to say mike said. It seems we are in a confusion of tongues here. Of course heated between who and what.

You guys are all the same "the wise people" so then you include you to be wise, and those that arent are not Like when a car dealer says "make the smart choice" You have fed your ego, and taken a shot at others all in one breath, I wonder if you even know you did it?

What makes me any smarter by buying this car?

So your saying everything will be worth nothing except gold? Someone from this dimension explain to me how this could ever make any sense. I would also accept answers from residents of this planet. When has it ever been all except gold (or what shelby moore likes) is worthless.

What would gold be priced in silver? gold is worth X silver? is that how it will %100 no doubt total fact work? So you are saying you are GOD? in so saying why are you buying gold if you know all of the future? why arent you the richest man alive already with all the Gold and Silver ?

Eric Sprott explains... Nice all you have done is say "this is what another guys says" So what so that other guy saying what you said makes it right? or that he agrees with you makes it %100 right? Again your ego is well fed it seems. Pile on other people who agree with you, there are millions of them the more the better, this is how it always is.

So if JHmint is buying more metals that means all of them are and it makes what he said false? Why dont you run for office. You know that the people cant keep up with your changing of words and twisting (it is called the LAW OF OCTAVES) for anyone who wants to know (or socratic method)

You find a statement to be extreme? why should anyone care or base any decision on what you find extreme? Now are we saying "invest in my opinion of what others are saying?" the word extreme itself would be defined 1000 ways by 1000 people.

Anyone who thinks any investment "CANT GO BACKWARDS" should NEVER EVER BE LISTENED TO AT ANY TIME, it does not matter what they say, they have lost any shred of credibility right there.

NOBODY NEEDS GOLD TO RUN A CURRENCY, THEY ARE DOING IT RIGHT NOW, THERE ARE 100's OF COUNTRIES RUNNING CURRENCIES WITHOUT GOLD, WHY DO YOU ALL THINK THE ONLY WAY IS WITH GOLD. Look in your wallet, it is paper backed by nothing but belief. THATS IT GOLD MEANS NOTHING IN THIS EQUATION HENCE IT IS %100 possible and in your own hand gold means nothing to a currency. IT can but does not have to be the only thing that makes the monetary world go round

Lastly whoever knocks a man for making an %85 gain in anything makes a poor case for himself. You made X % on X good for you, I doubt you sell it before it is at $15.

If it is such an enemy of the money men elite etc. they will find a way to keep it down if it suits them, if it could benefit them, they will prop.

By the way 20-500 trillion is nothing, that is all a show when you decide to take some time and understand Uniform Commercial Code you will realize owning slaves (humans) is the ultimate commodity, the market is just a game to further that goal.

Law of Octaves, read on it, you are a master of it. This is what politicians do, i dont trust them, nor do i trust you, but you know as well as I there are enough that do.

Dr. David Page
03 Feb 11, 09:37
dollar-oil link

"...Accordingly, if the dollar-oil link were threatened, Washington would send troops to Saudi Arabia immediately, and the Saudi Royal family is well aware of this".

Even if such were true, do you know what such insubstantiated utterances say about you and the US? Will the US also go to war with South Africa and Australia if they price their diamonds in something other than US dollars? Nonsense. In truth, if OPEC broke the dollar-oli link, they would only be doing what Bernanke is so desperately trying to do himself (only better): export inflation. The greenback would tumble without the printing presses even needing to be turned on -- currently the Fed's central policy...

Dr. David Page

Shelby Moore
03 Feb 11, 12:50
gold & silver only?

Brian Thiesen,

There is no confusion as to who gained more, those in silver or those who follow Mike Stathis, just see my reply to your comment in the other article:

On your other points, yes silver will be priced in gold and gold will be priced in silver, as it was for 2000+ years of human civilization, except just recently since 1920s when the 300 year public cycle wave was peaking and fiat central banks spread all over the world.

Now the *national* central banks are all going to die, as the 300 year private wave cycle begins. Because as I explained the math in my prior comment above, there is no mathematical way the current western fiat systems can survive a return to positive REAL interest rates.

No, there won't be only gold & silver. The politicians will get together and figure out how to make new fiat system regional central banks that bankrupts those who prevent the current one from returning to positive REAL interest rates. After that bankruptcy, then we can get back to high interest rates, saving in bonds, etc.. Similar to the 1980s, except with severe bankruptcies much more severe than 1920s (because the debt-to-GDP ratios are much more severe), so much more global turmoil and change (as we are seeing now in Africa with govts overthrown due to bankruptcy of the people due to food price inflation and thus hunger).

The big question is what form with those bankruptcies take? Will it be a steady devaluation of paper fiats relative to gold & silver, until the paper fiats are worth say 5% of what they were in 2001? Or will it be a quick devaluation at some point, due to denial to deal with the problem by the western govts?

I think it will be a combination of the two, and thus I would trust your brokerage paper digits, because eventually the govt is going to be forced to get nasty in order to force the bankruptcy on people. And usually socialist democracies steal from the middle class to give to the entitled class and the rich. So just ask yourself, does your brokerage account put you in the middle class?

Brian Thiesen wrote:

"By the way 20-500 trillion is nothing, that is all a show when you decide to take some time and understand Uniform Commercial Code you will realize owning slaves (humans) is the ultimate commodity, the market is just a game to further that goal."

Yes you are correct, because the slaves refuse to stop using debt, and debt requires a fractional reserve system, because if you loaned all the gold in the world at 5% for 300 years, then the interest compounded (the increase of the money supply needed) would be 2,273,996 times greater, but gold can only be mined at about 2 - 3% increase. Thus all fiat systems are inherently debased and bankrupt. This only becomes apparent then when the fractional ratio gets so far out-of-whack that the people stampede. We are very close to that now, because there is no mathematical way to get back to positive REAL interest rates.

ron davis
04 Feb 11, 05:21
empty minded gold bugs are

dr page, if you dont believe the importance of the dollar oil link then its your issue to deal with. the arguments of the doubters of this rational article only proves just how naive and empty headed gold lovers are.

Shelby Moore
04 Feb 11, 09:38

ron davis,

Your comment was subjective banter and thus empty, i.e. contained no statement of fact nor logic.

04 Feb 11, 12:37

comments closed in this thread.

04 Feb 11, 18:04

Gold will always be worth something. It preserves wealth in a currency-failure environment. The decoupling from the dollar has begun. Like all paper currencies the dollar will become worthless in time. Gold won't. won't.

Alternative is rigged casino stock market controlled by flash traders and the corrupt banks. Keep it! The dollar is doomed, the republic is dead, the government are tyrants.

07 Feb 11, 18:13
Dollar-Oil Link

The dollar-oil link argument is a joke. There is a huge difference between oil being traded in dollars and dollars being backed by oil. The dollar is not backed by oil anymore than it's backed by corn or sugar or cotton or any of the other commodities traded in dollars. If it was backed by any of these, they're dollar values would never vary, which they clearly do. I don't expect the dollar to plummet suddenly, but if it did, commodity traders would quickly shift to other currencies. There is nothing forcing any oil exporters to accept only dollars.

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