Social Security recipient spending represents roughly 3.2% of our $14 trillion economy. My eyes roll when people suggest we do away with it. Talk about shooting yourself in both feet. These same people never suggest doing away with corporate welfare programs such as the Export/Import Bank or subsidies to corporate farms.

Inflation is currently just over 9% and unemployment is about 22% using a comparable U6 according to John Williams at Shadow Government Statistics. Mr. Williams calculates inflation and unemployment using both 1992 and 1981 formula as opposed to the more convoluted machinations put out by the BLS today. I highly recommend his site.

We haven’t witnessed the often predicted, just around the corner Weimar scenario because the trillions spent to bail out the banks isn’t circulating through the economy the way Social Security payments do. For the most part, this money remains on deposit at the Fed or is held by the bailed out bank to make the books appear viable.

Why lend when you can borrow form the Fed at less than 0% and buy government bonds and notes that pay 3-5%. There has never been a better time than now to be a banker.

All this newly created money will eventually circulate beyond the tight little triangle of the Fed-Banks-Treasury and we will see hyperinflation. On that day a banker’s most valued customers just might be Social Security recipients. The retired, widows, orphans, blind and other disabled might well be the only deposits upon which the bankers can depend.

As I understand it, during a hyperinflation there is deflation in real (gold) terms, i.e. the money supply and prices are falling in gold equivalents. You could think of it as deflation + currency collapse, as opposed to merely deflation. Looking at things in nominal terms obscures the deflation, since the currency is failing and “nominal” is drastically different from “real”.

Once the money velocity goes high enough, prices will increase much faster than the rate of money printing. A doubling of the money supply might quadruple prices (or worse). You’re really in the death spiral at that point, since every time the government prints more money, it gets even harder for people to buy things, and they holler even louder for yet more money. In terms of “stuff” or gold the money supply is actually shrinking even while they print furiously. During the Weimar hyperinflation the total gold value of all their currency shrunk by something like 95%.

Notice that this means gold doesn’t just act as a store of value and a way to preserve capital. At the end of the hyperinflation the purchasing power of gold should be much higher than before the start.

Meanwhile, businesses can’t cope with rapid inflation and go bankrupt, and production shuts down due to price controls. Capital is either wiped out by inflation or it’s “on strike” (safely tucked away in gold, silver, land, etc), so there’s no business investment going on. The economy may have an initial “crack-up boom” but it eventually grinds to a halt without a reliable currency. Which sure feels like massive deflation to the guy on the street.

the way I see it, the super-rich make it through either scenario

the frugal savers who have have lived within their means, are freeof debt, and have prepared for a rainy day can manage the deflationary scenario, but will see the fruits of their labor quickly dissipate with hyperinflation.

the typical American overspending, up-to the-ears in debt glutton will (and should) get hammered in either scenarion.

Obviously Goldman Sachs, JP Morgan Chase, et al are bad guys who deserve to be impoverished or imprisoned. But rapacious bankers are just a symptom of the deeper problem, which is a government that prints unlimited amounts of paper currency and hands it to the banks in order to finance a global military empire and a cradle-to-grave welfare state. With sound money (i.e. money that exists in a limited quantity and can’t be created out of thin air) the government would have to tell us the truth about what’s possible and grow only to the extent that tax revenue is available. Bankers, defense contractors and oil companies would have less free money to play with and would commit fewer crimes. And the rest of us would have to behave like adults and stop demanding free stuff from our governments.

Well guess what, kids?

I have one question for those of you blaming government. Is there ever a time when you blame the fat cats, crooks and liars who lost the trillions of dollars that caused this mess?