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Felix Zulauf on King World News: Deflaton; Hyperinflation; Currency Reform

Felix Zulauf has been a Barron’s Roundtable panelist member for over 2 decades. Investors have only read about Felix in Barron’s because he simply does not give interviews outside of Barron’s. This is another tremendous exclusive from King World News that takes a grave peek into the future for the global economy.

Industrial economies simply have too much debt outstanding relative to their economies. They have to borrow more & more to pay their interest; its a Ponzi scheme. There simply isn't enough economic growth to service the outstanding debts, which inevitably will lead to collapse. Following the collapse, global central banks will crank up the presses in a vain attempt to save the system, destroying the currency.

Listen Here: Felix Zulauf on King World News

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The monetary base (M0) has expanded massively.

M0 includes all coins and bank notes issued plus the reserve balances of commercial banks held at the central bank.

Its the smallest of the money supply measures.

I haven't found M0 stats for the Federal Reserve yet, but the Bank of England's stats show a massive leap in commercial bank reserve balances over the last year.

The increase in physical currency is also well above the CPI measures of inflation.

April 2009 stats:

http://www.bankofengland.co.uk/statistics/fnc/2009/apr/index...

April 2010 stats:

http://www.bankofengland.co.uk/statistics/fnc/2010/apr/index...

We don't have M-zero, we have

We don't have M-zero, we have the AMB, Adj. Monetary Base.

Gary North links to all of the Fed Reserve Charts from his site.
http://www.garynorth.com/public/department29.cfm

The Short-term AMB is here:
http://research.stlouisfed.org/publications/usfd/page3.pdf

I'm watching the M1 multiplier carefully for a breakout above 0.85, which would indicate a loosening of the banks lending standards b/c they release their excess reserves held with the Fed.

If that money makes its way into the economy that will ignite the inflation engine. If the bond market collapses, that will ignite the hyperinflation engine.

While neither of these things happen, there is a great sucking sound of your future being rolled up towards the banks, which they will do for as long as they can get away with it.

Ta,

Every decent man is ashamed of the government he lives under. -- H.L. Mencken

Blog: The Present in Plain Text
Listen to The Myo-Tonics on YouTube

Thanks for the links.

I've had some funny conversations with my bank recently. Its quite revealing. The staff there are all on commission.

The conversation usually goes like this:

Cashier: I've noticed that your current account balance is quite high, would you like to open a savings account?

Me: No thanks, that money is all coming out in the next few days.

Cashier: Oh. Okay. Would you be interested in a loan?

Me: No thanks.

Joe Public is not saving much. He's also not borrowing much. That's what the banks find most alarming.

Michael Nystrom's picture

The future will be sucked into the banks

And then destroyed.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.
Michael Nystrom's picture

M3 is falling

I have always thought the Fed stopped publishing M3 not because they feared the visibility of inflation, but of deflation, which it is showing now.

http://www.telegraph.co.uk/finance/economics/7769126/US-mone...

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.
Republicae's picture

The FED stopped publishing

The FED stopped publishing the M3 because it was a rather useless measurement of the actual money supply and didn’t provide any useful indicators of economic activities that the M2 didn’t already provide. The problem is that the definitions created by the FED of the money supply are, for the most part, skewed and conceal the actions of monetary injections and creation.

To get to the “brass tacks” of the money supply and provide ourselves with an accurate definition then we must define it that measures the actual expansion resulting from the Federal Reserve injections and fractional reserve banking. All other indicators within the various M definitions include lateral transfers of existing money and certain credit transactions which, in and of themselves, do not indicate either an expansion or contraction of the money supply. We need to look at the actual supply of high-powered money, money that increases as it passes through various monetary mechanisms, such as fractional reserve banking and more importantly quantitative easing where the FED/GOV are simply “printing” pure fiat currency without monetizing debt. If you look at that then you will readily recognize that there is not a contraction in the money supply but a massive, unprecedented expansion of that supply. Look at the FED’s balance sheet, that is the first place one should look to see what is happening.

Additionally Michael....four years ago, in the last Official FED M3 report, the money supply was $10270.74 Billion Dollars, if, as the article you cite is true, then what you see over the last four years has been a massive expansion of the money supply.

It should also be understood that just because there has been a downward turn in the growth curve of the measurements of this "reconstructed M3" does not necessarily mean that there has been an actual contraction in the money supply itself, only in the rate of growth of the supply. However, it appears that "deflationists" have jumped on the percentage of growth decline and have concluded that the money supply is being deflated. The fact is that if you look at money supply growth charts, there is only a contraction over a twelve month period in the actual supply of money if the trend goes below zero into the negative percentages.

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Yes, demand deposits and time deposits are down.

Cash is up.

M3 falling is what this

M3 falling is what this 'contraction' is all about. The reflation of the credit markets will not happen via money creation, but it will result in that money being reflected in higher M1 statistics, which excludes credit. This is exactly what is happening.

When the bonds lose the credibility of being paid for with money of any value their prices will drop like rocks and all those foreign dollars will be repatriated, igniting a spiraling upwards of prices as M1 soars.

Hyperinflation is a currency-confidence event.

Ta,

Every decent man is ashamed of the government he lives under. -- H.L. Mencken

Blog: The Present in Plain Text
Listen to The Myo-Tonics on YouTube

Escatological Hope

I am convinced that the Deflation/Hyperinflation/Currency Collapse scenario has already left the station and the impending train wreck is not far down the tracks.

[ The video interview in the following thread -- particularly the last half with Damon Vrabel -- is definately worth a reprise. ] --

http://www.dailypaul.com/node/134136

See also the following article for more particulars on Vrabel's view:

http://economicedge.blogspot.com/2010/05/damon-vrabel-coming...

To emphasize the stacked deck nature of the game being played in the luxury class on the last short leg of this journey I will put it another way: I am sure there are those in the know who understand that this is in the cards but even They will be surprised how rapidly the tables will be turned once the hand is called and the cards are face up. [ See: http://www.dailypaul.com/node/134136 ]

I expect we will have no time to organize anything resembling political response near term. Actually, I think the scenario will swirl faster than I can mix metaphors, quickly accelerating past the turnstyle by whirlwind into a vortex of destruction. It will catch ALL unprepared. Some more than others. So I expect few will succeed in profiting from tagging the bottom of the set up of unwinding deflation before the change up to hyperinflation.

Ultimately our short term challenge will be to weather the storm in order to emerge for the replanting and rebuilding. Accordingly, I'm interested in seeing more discussion of hand to hand networking and bartering strategies. Additionally, we continue our study of true liberty principles. This is of much greater urgency than pragmatic tactics of political expediency. By advance thought we help ourselves, loved ones, and the direction of the society at large with focus towards greater self-sufficiency. What emerges with our help may be a sort of spontaneous order to better present counter force to the centrepital concentrations the dark forces design to be the contrived fallout of disorder. A disorder I do not fear, by the way; for if events roll at too measured a pace, it becomes too easy to load the cattle cars which They have lined up to pull into the station.

We've all heard allusions to 'Perfect Storm' used to describe the confluence of economic circumstances likening this cataclysm on the horizon to an incidence of extreme weather. But the cyclonic vortex I envision is not like that which occurs as a consequence of natural weather events [... not , in the usual sense -- an act of God ]. I believe it will be more like a major earth scorching conflagration for the history books, or one might even say, scripture. I expect the inferno that will rage will create it's own weather systems and defy prediction and control. [ See: http://www.newyorker.com/reporting/2009/10/26/091026fa_fact_... ]

Many who remain Stationary and try to fight it will be consumed ...

The smoke and ash will eventually clear ... and when it does ... it is my hope ...
.......................... this hanging fire will have had a purifying effect the arsonist never anticipated.

http://www.youtube.com/watch?v=bkMziUkfA2w

" When in the course of human events, it becomes necessary for one people to dissolve the political bonds which have connected them with another, and to assume among the powers of the earth the separate and equal STATION to which the laws of nature and of nature's God entitle them, ... "

Viva la r'Evolution

bump

VIVA LA REVOLUTION

and cheers to the purifying fire :)

Great Thread

Industrialization is a "Capitalist" model......it cannot function during an "information age" and especially not during a corporatist one.

It would of never seen the light of day during a Free-Market Society, either.

Great Post Michael!!!

Debbie's picture

Thank you for posting this! Great comments!

It was a most interesting interview and we obviously all need to get prepared now. I like the idea of building a network of people to trade and barter amongst ourselves as Michael and spacehabitats discuss below.

Debbie

The world's biggest hyperinflationary events...

...are usually attempts to extinguish crippling debt.

http://en.wikipedia.org/wiki/Hyperinflation

That's a long list of collapsed currencies there.

Another Zulauf interview, though in German

Zulauf's macroeconomic insights are the highlight of the Barron's January "roundtable" interviews for me as well.

But it is a bit of an exaggeration to say that Zulauf only gives interviews to Barron's. Here are a couple more places I've found recently to read his views.

First, he was quoted extensively in David R. Kotok and Vincenzo Sciarretta's book "Invest in Europe Now" which came out back in March.

Also, he gave an excellent interview to the Handlesblatt newspaper last week. Article here for those who read German or have the patience to figure out the machine translation.

Republicae's picture

der Vorhang ist im Begriff,

der Vorhang ist im Begriff, wieder herausgezogen werden! danke für den Link.

The curtain is about to be pulled back!

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Michael Nystrom's picture

Dude

That link is in German.

Where are the other interviews in English? I haven't seen any. So I don't think it is an exaggeration.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

Economic Supernova leading to New World Order

What he is describing is no "meltdown" or "meltup".
He describes a catastrophic global collapse (which he calls 'deflation')followed by hyperinflation occurring over the course of a FEW WEEKS.

This kind of 'big bang' does not allow any type methodical political response; at least not in any kind of democratic sense.

The crisis comes so quickly that by the time the public at large is aware of the magnitude of the problem there is no time to formulate any type of grassroots response.

The 'currency reform' that he mentions would have to have been planned in advance, presumably by some centralized authority, and will be imposed on a stunned populace with NO ALTERNATIVES available other than economic anarchy.

Welcome to the New World Order.

******************************
The Virtual Conspiracy

Michael Nystrom's picture

Exactly

That is what makes this interview so chilling. Everything looks like it is fine, humming along until one day there is a catastrophic collapse.

He basically says that 'Greece shows us we've come to the end of the line of this debt based growth system.' Growth requires debt, but there isn't enough growth to support any more debt service. At that point, the pyramid of debt begins to collapse.

We saw it already in the stock market, and the housing market. Now we're seeing it at the sovereign level, on the edges in the PIGS.

Right now we're drifting towards deflation, but everyone is focused on inflation. One day we could see multiple Lehman type events in a single day. It is only at that point that the Central Banks really start cranking. Instead of expanding their balance sheet 1 or 2 times, they ramp it up 50x!!! (You can hear Eric King audibly gasp at the thought!)

At that point the currency is destroyed. Done. Over. Then comes the global currency reform.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

Micheal, we can argue

Micheal,
we can argue hyperinflation or deflation.. the result will be the same.. the most important action for people to take is to become as self sufficient as possible. Those of you with relatives or good friends that live in a rural farming area need to ask those people that if the SHTF, would me and my family be welcome to come stay with you.. start buying your non hybrid seeds, extra clothing, storage food for 1 year for each member of your family. Soap, toothpaste, etc etc. Make sure all dental visits are up to date. Acquire the means of self protection. Stock up on any needed medications. The time to warehouse is NOW.. then buy your silver and gold. Silver and gold will do well wether we hit hyperinflation or deflation. If the majority of the families in this nation would prepare to be self sufficient it would make the transition phase go much more smoothly for all. How many of you are preparing?

You should already have those

You should already have those things, SIERRA. But, if you've done nothing to prepare, then your advice is reasonable.

Getting a healthy diet will decrease most people's dependence on medications. Gold and Silver are wealth protectors, not day-to-day insurance.

We've laid in food for a few months as well as have a productive garden and a functioning chicken farm.

I've decided to finally mobilize my modest cast reserves to build the infrastructure for raising goats. If we're wrong about all of this in the short-term, then I have a functional, sustainable small-farm. If we're not wrong, then I have a way to provide for my family and to help rebuild my community by raising excess food to trade for those things I'll need but can't produce myself.

BTW, self-sustainability requires a lot of people, a lot more than a couple with one small child. Thankfully, my educating of my family for so long has them thinking in similar terms and have agreed to help us build for these events.

Ta,

Every decent man is ashamed of the government he lives under. -- H.L. Mencken

Blog: The Present in Plain Text
Listen to The Myo-Tonics on YouTube

Connecting the dots...

When Dr. Paul mentions "destruction of the currency" most of the MSM pundits just smile and move on. They don't want to explore these doomsday scenarios because that would lead to discussions about the Amero, loss of national sovereignty, and what it would mean to the common man.

It might even stimulate people to think about what it would take to sustain a modern technological/industrial society without giving up our cherished liberties.

If WE developed a workable alternative to the current fiat monetary system THEY might even lose control before their plan could come to fruition.

Unfortunately, I have seen too many people willing to dismiss the whole issue thinking that they are going to enjoy some type of anarchist's utopia, ride the storm out in their well-stocked bunker, or find safety living in a foreign country.

******************************
The Virtual Conspiracy

escape fiat

In the interview, I heard him say that people (I assume the rich and informed) are now escaping fiat currencies. I take this to mean they are moving out of paper currencies and into tangible items that may include land.

"If WE developed a workable alternative to the current fiat monetary system"

In 1985, with the Congressional Black Caucus, Ron Paul planted seeds to allow us to do so.
http://usmint.gov/mint_programs/american_eagles/index.cfm?ac...
The American Eagle Bullion program was launched in 1986 with the sale of gold and silver bullion coins.

I suggest everyone get some of the silver eagles (current street value $20 or $21) and start spending/bartering with these coins. The coins are legal tender with face value of $1.
The workable alternative is here. We can choose to pick this up right now and use what Ron Paul created for us.

Thanks for the reply and link...

Unfortunately, if I were to try using Silver Eagles for currency, Gesham's Law would drive them out of circulation faster than I could put them in.

Bad money drives out good.

In other words, as soon as somebody with an IQ above single digits came across an Eagle they would do exactly what I would do; grab it, put it in a coffee can and bury it in the backyard.

Your heart is in the right place, but I know it won't be that simple.

There are some people working on the solutions to the weaknesses of bartering systems. But it will take some creativity, co-operation, and thinking outside of the box.

******************************
The Virtual Conspiracy

Michael Nystrom's picture

We build it amongst ourselves

I think the idea behind spending silver eagles is not to spend them at face value into the general public, but to use them as barter between people of like mind.

What Zulauf said was to get outside of the current financial / credit system, because that system is doomed.

i.e. get out of paper. Take your paper and convert it to something of value - like land or precious metals.

Paradoxically, I think that land / real estate prices will continue to go down, since few can afford to buy without the traditional banking system.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

urban realestate and

urban realestate and commercial realestate yes.. they will collapse.. Farmland will not. It will appreciate like gold and silver.. especially if you have live water.. a spring/river etc..

reedr3v's picture

Good thought, sierra

.

Amen, Brother!!!

Get out of paper!
And I agree that building a network of people who have things to exchange is a great idea.

As a Latter Day Saint I am increasing my food storage to about three years supply. (That's despite living in the heart of the "breadbasket of the world".)

People don't realize how interdependent our economy is.
Our farmers use Middle Eastern oil to cultivate their land!

Besides land and gold I would also recommend almost anything that is portable, non-perishable, and has intrinsic value.

Liquid soap, writing paper, ammunition, etc.

******************************
The Virtual Conspiracy

ammo will be worth its weight

ammo will be worth its weight in gold.. .223, .308, 30/06, .45acp. 9mm, .40s&w, .22 long rifle. 12 guage.
300 winchester mag.

There will be other items worth more

When the SHTF,Just think imports,because these will come to a halt.

If I disappear from a discussion please forgive me. My 24-7 business requires me to split mid-sentence to serve them. I am not ducking out, I will be back later to catch up.