Loading ...Rick’s Pick for Tuesday
‘The Only Way to Make Money This Year’
Posted April 25, 11:03 p.m. ET
I received an email from a friend on Monday touting a plan featured at ZeroHedge as “the only way to make money this year.” The plan itself, proffered by one Eric Peters, a fund CIO, seems like a good one: “Bet that…the central bankers will continue getting everything wrong, and double down when they do.” It is the hyperinflationary endgame predicted by Peters with which I would disagree. I argued as follows:
I loved this plan until I got to the last paragraph, Mike. Even if hyperinflation were possible — which I seriously doubt, for reasons I’ve been writing about for more than 20 years — it would be over in a matter of days, bringing in its wake a deflation that could conceivably last for generations. In such circumstances, the best hyperinflation “play” would be to pay off one’s mortgage in the blink of time available between hyperinflation’s onset and deflation’s coup de grace; and/or to exchange a fistful of Krugerrands that might very fleetingly spike to $50,000 for some choice farmland owned by an incredibly stupid farmer.
Helicopter Money a Non-Starter
Meanwhile, anyone who talks about a ‘paradrop’ hasn’t worked out its instrumentalities, which are flat-out refuted by Weimar’s methods and experience during the 1921-23 hyperinflation. Success, if you can call it that, required massive collusion between government and a very heavily unionized work force. This time, where and to whom would the weekly boxcars of money be sent? (Were you aware that the biggest German employers were allowed by the government to print and distribute their own scrip, lest workers riot when the boxcars failed to come on schedule?) Another practical concern, and not a small one: How would hyperinflation remedy the accumulated, manifestly unpayable liabilities of pension trusts, life insurance companies, Social Security and Medicare? And, which lucky beneficiaries would be so politically privileged as to continue receiving their monthly checks?
The hyperinflationists talk as though politicians were capable of deliberately triggering, then managing, the deflationary collapse of a quadrillion-dollar derivatives bubble. As for the ZeroHedge guys, they would make plans to surf a tsunami. The most deflationary event one could conceive of — i.e., the banks not opening some Monday morning because of a panic that has occurred overnight in global financial markets — is also the least farfetched of all the endgame scenarios I’ve pondered. The branches keep no more than $25k-$50K on hand, and the flimsy system that clears credit-card transactions would collapse in an hour. Thereupon, in the week (month?) it would take for the boxcars of money to reach us, deflation would already have caused the banking system’s exquisitely delicate machinery to seize