Hyperinflation and Unemployment Two Signs of Serious Trouble

No time to write a short Markets and Money today… So we wrote a long one…

“Mother of a whorehouse of sh**!”

“Ah… What an a******! This morning is sh****.”

Our taxi driver was breaking down. The main road into Paris was blocked. Even at 6 AM, there was a traffic jam. Nothing moved.

Except our cab. After addressing himself vigorously and colorfully to no one in particular, he took matters into his own hands. With a few more expletives, he pushed his way onto the shoulder…and excited from the freeway. The next hour and a half were spent in more jam-ups, more cussing, and some death-defying highway stunts.

“I don’t know how this city stays alive. Who would want to work or do business here? You can’t get anywhere. This is unusual. But everyday there’s a traffic jam. And I always seem to find it.

“Whore of sh**!”

We finally arrived at our office…at 8 AM.

Checking the news… The big news from yesterday was the rise in the price of gold. It went up $24 to a new all-time high. The stock market was just about flat.

What does it mean?

Well, the dollar is going down, for one thing. Bonds too. Has the long- awaited turnaround in the bond market finally begun? We don’t know. We really didn’t expect it so soon.

John Williams, who keeps track of what is really going on in the economy at his “ShadowStats” outfit, says to expect hyperinflation within 6 to 9 months.

Seems too early to us.

But a major turn in the bond market…and much higher inflation rates…are coming. And you don’t want to be holding US bonds…or muni bonds…or any kind of bonds when they arrive.

What then?

Cash and gold. Those are the only reasonably safe positions now. Your gold will go up. Your cash will go down. You’ll come out even. That will be a lot better than most people.

One thing John Williams is probably right about is that when it comes, it probably won’t be led by a gradual, orderly increase in consumer prices. We’re still in a de-leveraging cycle – with plenty of spare capacity and little excess purchasing power. Which means, normal demand will not push up prices.

Take the labor market, for example. There are millions of idle hands available… Labor is a big part of business costs. Until unemployment goes down and employees have some bargaining power, there shouldn’t be any inflation coming from that front.

This will be a different kind of inflation…much more violent and dangerous. Prices will shoot up suddenly, quickly – as people lose confidence in the dollar. It will not be gradual, but shocking…turbulent…unexpected. Gold will hit $1,500…then, $2,000 just a few weeks later.

This hyperinflation, along with high, long-term unemployment rates, will set the stage for serious trouble.

Unemployment peaked out in the recession of the early ’80s with the average jobless person out of work for a little more than 20 weeks. Today, the average jobless person is out of work for more than 35 weeks. We haven’t seen anything like this since the Great Depression.

But our message today is that this is actually worse than in the Great Depression.

In the words of Dominique Strauss Kahn, who heads the IMF:

“We are not safe.”

What haunts DSK, as he is known in France, is the French Revolution. People like DSK lost not only their jobs…but their heads.

Here’s the report from The Telegraph:

“The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment,” said Dominique Strauss-Kahn, the IMF’s chief, at an Oslo jobs summit with the International Labour Federation (ILO).

He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. “We are not safe,” he said.

A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. “The Great Recession has left gaping wounds. High and long- lasting unemployment represents a risk to the stability of existing democracies,” it said.

The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the “employment intensity of growth” as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water.

Olivier Blanchard, the IMF’s chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.

“Long-term unemployment is alarmingly high: in the US, half the unemployed have been out of work for over six months, something we have not seen since the Great Depression,” he said.

And more thoughts…

We listen to CNN in Spanish on the radio while driving to work. If we listen to it long enough, we figure, maybe we’ll understand what they’re talking about.

On the radio Friday was an interview with Carmen Reinhardt. We didn’t know she was a Spanish speaker. She wrote, along with Ken Rogoff, the book on sovereign bankruptcies.

“What should be done?” came the inevitable question.

“Well, I am actually in favor of stimulus,” said the University of Maryland economist. “But the real problem is confidence. You can’t stimulate effectively unless you also address long term, structural problems. Deficits need to be brought down. Investors need to see a good plan. Otherwise, the stimulus efforts will just lead to bubbles and more debt.”

*** Cut the deficits? Not in Zombie Nation.

As we mentioned last week, zombies took over the nation in 2008, with the election of Barack Obama. He was the zombie candidate.

Now comes word, from The Washington Post, that there’s been a sharp rise in disability filings at the Social Security Administration. People who were perfectly capable of doing their work before the financial crisis hit in ’07 have been thrown onto the unemployment roles. Desperate for income, they find they have not just lost their jobs. They’ve been disabled.

That gives them a way to get money from the taxpayer even after their unemployment benefits have run out. They become not just temporary zombies, in other words, but permanent ones.

The trouble with zombies is that they’re expensive to maintain…and inherently dangerous. Which is to say, the welfare state works fine as long as there’s enough money to keep the zombies happy. But when you get too many zombies…and not enough money to feed them properly…you’re in danger. Well, the welfare state itself is in danger.

Imagine. More than 200 million zombies. If each one ate two eggs a day it would take 400 million chickens to keep the zombies supplied.

“But wait…hold on there, Bill…you’re not seriously saying that every unemployed person is a zombie. Many people lose jobs through no fault of their own. They live on savings…then go back to work. That is hardly the mark of a zombie.”

Yes, of course…Mr. Compassion and Sensibility…

Don’t get us wrong. We love zombies. Some of our best friends are zombies…and a lot of our relatives! Heck, we might be one too if they paid us better.

We’re not saying that everyone who loses his job becomes a zombie. But that’s what makes this Great Correction actually worse than the Great Depression of the ’30s. There were fewer zombie supports back then. So people HAD to work. And they did. They worked on farms. And then, when the war started, they worked in factories.

The point is, they couldn’t become zombies because – even with all Roosevelt’s efforts to create a zombie economy – there just wasn’t enough money to support them.

This is, of course, why there are so few zombies in the emerging markets too. Not that there aren’t a lot of people who would like to zombies…and they’ll get their turn!…but right now, the emerging markets are still too poor to be able to afford a large class of leeches.

In the ’30s in America, as in most of the emerging economies today, people had to work. They might have worked cheap. They might have done work they didn’t want to do. They might have had bad backs and weak knees…but they went to work anyway. They couldn’t afford to be disabled.

If you go to China or Vietnam or one of the industrious emerging markets…you won’t even see people sit down. They don’t have time.

Work…work…work…work for wages…work for relatives…work for food…work for fun…

..it’s what you do, when you have no choice.


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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9 Comments on "Hyperinflation and Unemployment Two Signs of Serious Trouble"

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point’s taken and well said, but all in all it’s a race to the bottom. I would prefer investment in human capital, rid the waste and BS part of the economy (most of it), and a slightly more optimistic view which just might, with all the wonderful tecnology now and forever. or it’s Oliver back down the chimney, his sister prostituted, his uncle sold as a human cadaver, and his dream of becoming a King Rat (Fagin). watch your pockets and keep that gold in your teeth. assuming that Australia holds up and the US plummets, you yanks (you are… Read more »

as a sweetener , and penance for my petulance, this is worth a laugh, its about the real zombies, not just the leech blood sucking types.



Seriously funny, peterg…

“Your gold will go up. Your cash will go down. You’ll come out even. That will be a lot better than most people.” … folly. I contend that nothing that isn’t of direct value for human sustenance will have much value in a hyperflationary scenario – and that includes gold – unless you can live longer through eating it. Food, medicine, drinking water etc will be worth far more than any stockpile of Gold however large – even if its “worth” $1M an ounce in worthless paper money through hyperinflation. At the end of it all, when they knock of… Read more »

Yes, I have learned that on our previous discussion on one of my economic classes. Hyperinflation and unemployment are big treats to the economy. On Monday we will continue the discussion and I am so grateful I came across this information. Definitely I will share the information to my classmates and teacher.


I like the leech analogy.

Marx had it all wrong. There are two classes in three strata. The leeching classes and the producer class or what we know as the “middle” class.

The poor leeching class (who pay no taxes) is attached to the ankles of the middle class, and the upper elite leeching class (who also pay no taxes) are attached at the neck.

“what happened to the middle class?” is an essay that has been written many times, in many nations. The leeching effect is seldom offered as the answer but I believe represents the truth.

Ned S

The Aussie word for ‘leech’ is bludger. You’ll find them in the welfare class, the middle class and the well to do. It’s more a state of mind regarding their expectations and whose responsibility it is to see they are met than anything else I suspect. The natural outcome of Socialism is to create more of them within each class perhaps?

Ned S

One classic middle class Oz bludger routine these days goes like this: I have a degree and am really smart. So my children will be really smart too. Real bonuses to society in fact. So everyone else should chip in and give me money for raising them.

I just about roll around on the floor laughing every time I hear that one and say Daddy is a bludger and his kiddies are going to be chips off the old block for sure!


“Hyperinflation and unemployment are big treats to the economy.”

Really, Kristine?~

Happy 31st October! ;)

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