John Williams - Financial sense Newshour - 20 Jan 2012 John Williams from Shadow Government Statistics. warns of a Hyper-inflationary Great Depression by 2014
John Williams (in another interview ): Sure. Before we had the financial crisis that broke in 2007 and 2008, the system was headed for hyperinflation by the end of the current decade, perhaps by 2020. That was just the way the government’s obligations were lined up. We were seeing deficits still averaging 5 trillion dollars a year on a gap accounting basis, completely unsustainable. By 2020 we would have been at a point where the government would have had to print the money to meet its obligations. There is no way it could sustain that with borrowing.
We had a circumstance develop in 2006-2007 where the economy started to turn down sharply, particularly in the housing area, which helped to trigger a financial crisis. The economy helped to trigger the financial crisis, the financial crisis exacerbated the downturn in the economy, and we saw almost a collapse in economic activity going through the year 2007, into 2008, even to 2009, and it has been pretty much bottom-bouncing since, irrespective of the official pronouncements out of Washington.
But in August/September of 2008, the people in Washington realized that they had so loused up the system that they were on the brink of a systemic failure, that the banking system was going to collapse if they didn’t do something. They weren’t kidding about that. We shouldn’t have gotten to that point, but having gotten to that point, they had to do what they had to do and put forth all sorts of emergency spending, lending, guarantees – they created whatever money they had to in order to keep the system from failing.
I will contend that they will continue to do that so long as the markets will let them get away with it. The problem is that the cures that they put forth did nothing to resolve the problem. It bought them a little time in terms of systemic stability, but the systemic solvency crisis continues. The banks are not healthy. The big banks are still in trouble.
We have another crisis that is brewing here. The U.S. economy did not recover. It, in fact, is still bottom-bouncing, and it is about to turn down again. All these factors will keep the Fed and the Treasury, the federal government, trying to pump money into the economy, doing some form of stimulus, providing liquidity to the banking system. The costs of all that are very inflationary, and that has accelerated the process whereby, if you look over the last year, the actions taken by the Fed, by the federal government, did a lot to kill global confidence in the U.S. dollar.
Looking back to the events in July/August of last year, they had the negotiation over the debt ceiling, and the inability to come up with a deficit reduction package or the willingness to actually take the political steps necessary to slash the social spending, which is effecting a looming national bankruptcy. As that fell apart, the rest of the world was watching the United States, and if you look at the market reaction, this was even before the downgrade of the U.S. Treasuries, there was panic selling of the dollar. The Swiss franc was soaring, gold was soaring, and that is one of the prerequisites to having hyperinflation – a loss of confidence – a loss of confidence in the dollar.
Then there were all sorts of market interventions. I would contend that the crisis in Europe was a real problem, but there was a lot of effort made to focus market attention on the crisis in Europe as a foil – efforts were made to curtail the rise in gold prices. The Swiss National Bank moved, at least for a short period of time, to tie the Swiss franc to the euro to effectively prop the euro, and to effectively prop the dollar.
It is an unstable, very volatile situation, that could break apart at any time, and as it does, there are a number of things that could push it over the edge, such as renewed Fed action, which is a virtual certainty, just a matter of when it hits. But you will start to see this circumstance move very rapidly to a higher inflation, and then as the confidence in the dollar continues to shrink, into a hyperinflation.
A lot of people say, “Oh, my goodness, how can you have inflation with a weak economy?” Indeed, we have a weak economy, and there are a lot of problems with what is being reported, but if you look at something as simple as payroll employment, despite all the problems with the reporting of the series, and I am happy to talk about the problems of the reporting issues, it is probably the best quality broad economic statistic that the government publishes. Just don’t pay too much attention to the month-to-month changes. It is much better than the GDP, and it is a coincident indicator of economic activity.
If you look at what has happened there, it plunged in late 2008 and 2009, and pretty much it has been bottom bouncing. It has moved a little bit higher, but it is far from having recovered the level that it was before the official recession started in 2007. I am talking about the level of payroll employment, the number of jobs that people are being paid for on company payrolls.