Sunday, July 1, 2012

The Next Crash Will Be A Lot Worse

John Williams of explains why next time will be worse and why that may not be that far away. For those unfamiliar with Shadowstats, they recalculate various government statistics using the government's older methods, allowing you to compare apples to apples on inflation rates & GDP. By revising their methods, the government overstates employment levels, understates inflation and there for overstate real GDP.

Here is an executive summary:

  • Real deficit is $5 Trillion per year using GAAP
  • $12 Trillion in USD held outside of US
  • A selling panic of $12 Trillion would spike interest rates
  • The Fed would be forced to buy Treasuries as buyer of last resort to keep interest rates down which would spike the money supply
  • The Banking crisis continues. Banks are still impaired & unable to make loans
  • QE’s purpose was to prop up banks, not a stimulus
  • QE3 will precipitate selling of USD
  • Dollar printing will cause hyperinflation
  • Investors will flee to gold
  • The next crash will be much worse than 2008 because we’ve had no real recovery
  • The 1980 method of computing inflation is currently 7% inflation
  • The 1990 method of computing inflation is currently 5% inflation
  • By 2014 Williams expects the beginnings of real hyperinflation
  • The dollar will lose its reserve currency status
I need to reinforce one point. If government reported inflation is masks the higher real rate of inflation, between 5-7% by the old calculations, then doesn't that explain why we don't feel like we're in a recovery?

For those interested in learning more about just how government statistics are calculated (and manipulated) TFMetals has a great podcast interview with Williams here. (Its about 30 min. in length) Even if you think you know about the reporting of GDP and unemployment, you may be surprised by what you learn,

As a reminder, here's some of his previous work:

Finally, you get get William's free report on what he believes is the coming hyperinflation here.

In coming days I will explain why we haven't yet seen hyperinflation, what shadow banking is and how it plays a role in the massive deleveraging going on in the US Banking system that has been underway since 2008.

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