Inflation or Hyperinflation?

Whilst discussing the demise of the Canadian penny in front of a Congressional panel, Fed Chairman Ben Bernanke demonstrates that "transactional currency is simply a notional, purely symbolic token medium of exchange, much more replaceable, resource-efficient and environmentally friendly than mining stupid metals for stupid coins."
(NotReal News)

overdue. In 'Deflation or Hyperinflation?' I wrote:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Here is FOA on timing, from a post in which he specifically predicted dollar "hyper price inflation":

Timing?

We, and I, as physical gold advocates, don't need timing for this position! Timing is for poor, paper traders. We are neither and our solid, long term, one call over several years to hold physical gold will confirm our reasoning. There is no stress for me to own this ancient asset as it is in a good proportion to all my other wealth.

There is no trading an economic system whose currency is ending its timeline. Smart, quick talking players will joke at our expense until fast markets and locked down paper gold positions block their "trading even" move into physical at any relative cheap price. Mine owners will see any near term profits evaporate into a government induced pricing contango that constrains stock equity with forced selling at paper gold prices.

My personal view

They will, one day in the future, helplessly watch their investments fall far behind a world free market price for physical gold. Further into the future, one day, mines will make money on the last thousand per ounce price for gold; only the first $XX,000.00 of price will not be available to them.

Yup, that was back in October of 2001. Bad timing? How have your mining stocks done lately? I know of one FOA reader who went "all in" with gold coins that year to the tune of somewhere around $400K. He had just retired from his previous life as a trader. Today his golden nest egg is worth $2 million, and he has been living off of it for most of that time! So much for bad timing, eh?

My argument for hyperinflation is FOA's argument. So you'll see me use FOA's terms. You'll see me quote a lot of FOA. And you'll see me restate the same call he made back in 2001. His call was clear and unchanging. His argument wasn't wrong then and it is even more pressing today, which I will explain. And just to be clear about FOA's call, here it is from that same post:

"While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!"

"Complete, currency killing" hyperinflation is a one-time event. In a moment I'll explain the reasoning behind this call and why it still stands. But first, let's take a look at a couple of the "inflation but not hyperinflation" arguments that have come into my sights.

"An Adult Approach"

In An Adult Approach – II (Defining Relative Real Value) Lee Quaintance and Paul Brodsky of QB Asset Management (or QBAMCO) laid out a nice argument for what sounds a lot like FOA's front lawn dump but without the "complete, currency killing" hyperinflation. In it, they explained that the process of "re-collateralizing unreserved credit" which began in 2008 will likely end with all of the assets backing today's bank money being replaced with new base money.

In other words, US dollar monetary base (today at around $2.6T) will be increased to cover and replace today's US bank assets (almost $20T). But they aren't predicting that the entire money supply will become base money, as happens during hyperinflation. Instead, they think that as credit money has all but been replaced with base money, "bank animal spirits will once again take over and we will have a new leveraging cycle." They provided the following conceptual illustration to help us visualize what they are projecting:

Then they ask (and answer), "Will the lines meet or cross? We don’t believe so…" I'm going to give you a longer excerpt, but I wanted to highlight this point first, because it is where my view differs from their view. The lines meeting and crossing is exactly what it looks like during hyperinflation, when bank credit disappears (because price inflation is running too hot to issue credit at any practical interest rate) and the entire money supply becomes base money in amounts which overtake the previous amount of credit money. The lines meeting and crossing could look something like this conceptual illustration (by DP):

Here is part of FOA's famous front lawn dump:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"

So their thesis is that the Fed buys almost all of today's bank assets (debt) for cash, but then during this process the banks, now almost fully reserved, start lending again and a new credit cycle begins without a systemic collapse. And what this will do to prices is deliver "a higher General Price Level" and "a CPI rate higher than the rate at which the GPL rises." I emailed with Paul about this call being much more tame than some things he has written in the past and he wrote back that he thinks my hyperinflation projection is "a very fat-tailed event" while they are "trying to be much more moderate in [their] projections."

I hope to show in this post that avoiding this "fat-tailed event" is the most unlikely scenario. It is not just about the gap between unreserved deposits and base money and bank levering/de-levering cycles. It is about a currency that has reached the end of its timeline when the removal of structural support (an FOA term) meets the largest spending/dollar-emitting machine the world has ever known. But first, here's a more complete excerpt from their paper, or you can read the whole thing at the link:

Magnitude of the Problem

Central bankers struck a match under the global economy in 1981 and it continues to burn. The match began to burn their fingers in 2008 when the process of “re-collateralizing” unreserved credit got underway.

The familiar graph above shows the increase in USD base money that began to de-lever the US banking system in 2008. Though we have written in the past about total dollar-denominated debt exceeding $50 trillion, all of that debt does not have to be paid down. (Most of it is fully-reserved because its creditors are not levered.) But there is an identifiable portion of dollar–denominated debt issued by highly levered creditors – banks.

We believe the debt-to-money gap that must and will be greatly reconciled in short order is the ratio of bank assets to the monetary base. As the graph below shows, the US Monetary Base was only 13% of US Bank Assets on December 31, 2011.The banking system is the source of unreserved credit and is on the hook to use its collective balance sheet to be the transfer mechanism for economic stimulation through monetary policy. And as they have already demonstrated repeatedly, monetary policy makers feel the need to de-lever the banking system today so it may then extend credit to the rest of the economy tomorrow.

Of course, the US banking system is not alone. According to the Financial Stability Board, worldwide bank assets (including US bank assets) were approximately $95 trillion in October 2011 (USD terms). Meanwhile the IMF reported that as of December 2010 the global supply of base money was approximately $12 trillion (USD terms). These figures put the worldwide proportion of base money-to-bank leverage roughly in line with the US.

Given: 1) the exorbitant leverage currently in the global banking system, 2) current negative real output growth in developed economies, 3) current negative real interest rates, 4) uniformly poor monetary, fiscal and demographic conditions across most developed economies, and 5) already wary populations beginning to get restless; we have difficulty imagining that global banks, labor, savers, politicians and investors will be able to endure current conditions much longer before demanding the financial reset button be pressed to complete bank de-levering.

We provide the graph below merely to make it easier to conceptualize the nature of such a de-levering, as we see it. (This is not necessarily a prediction of timing or magnitude.) The takeaway is that base money (in the form of physical currency in circulation) and bank deposits will have to rise at a much steeper rate than bank assets until the banking system is more fully reserved. (At some point we think bank animal spirits will once again take over and we will have a new leveraging cycle.)

The graph above illustrates the forces behind a high-tech jubilee. The burden of repaying past systemic debt will have been greatly reduced through base money inflation, (that shifts the GPL [General Price Level] higher, including revenues and wages), while the integrity of systemic debt remains intact (nominally). The integrity of the banking system will also remain intact, as would the creditworthiness of most debtors.

So we anticipate the sum of physical currency and bank deposits to continue to rise to stimulate nominal GDP growth and the ratio of bank credit-to-base money to contract further. Will the lines meet or cross? We don’t believe so but we do think the gap will narrow substantially before bank assets can grow materially again. Thus, we expect the rate of change of the General Price Level to equal the rate of change of the sum of physical currency and bank credit LESS some accommodation for productivity gains. It is reasonable to expect:

1) A higher General Price Level

2) A CPI rate higher than the rate at which the GPL rises

3) Levered asset inflation rates that very likely will be nominally positive but negative in GPL terms and, even more so in CPI terms

"Merely Strong Inflation"

Another "inflation but not hyperinflation" post which crossed my path the other day was Get Ready for 'Hot' Inflation by Gregor Macdonald. In it he writes:

Ideological deflationists and inflationists alike find themselves both facing the same problem. The former still carry the torch for a vicious deflationary juggernaut sure to overpower the actions of the mightiest central banks on the planet. The latter keep expecting not merely a strong inflation but a breakout of hyperinflation.

Neither has occurred, and the question is, why not?

The answer is a 'cold' inflation, marked by a steady loss of purchasing power that has progressed through Western economies, not merely over the past few years but over the past decade. Moreover, perhaps it’s also the case that complacency in the face of empirical data (heavily-manipulated, many would argue), support has grown up around ongoing “benign” inflation.

If so, Western economies face an unpriced risk now, not from spiraling deflation, nor hyperinflation, but rather from the breakout of a (merely) strong inflation.

After reading his post, I asked Gregor in a comment and a tweet:

"With our government’s budget deficit at twice the rate of the trade deficit, and with the drop-off in foreign CB support for our government debt, how can we possibly have “merely strong inflation”?"

Here was Gregor's reply:

"Because the subject is so vast, and because I'd like to make a comment that is useful, I'll just respond briefly to FOFOA on his remarks regarding my present concern for a strong inflation, and my lack of concern for a spiraling deflation or hyperinflation...

So, while there are many components required to foster/create/spark either strong inflation or hyperinflation--which have been discussed and articulated historically in the corpus of work done on the subject--there is in my opinion one factor, and one factor alone, that *must* be present in all hyperinflations. And that factor is the social, behavioral component in which the users of the currency *must* cross a tipping point where they are inclined to effectively throw the currency away, in exchange for any other good or currency, at some notable rate of speed. Without this behavioral shift, without this social decision, without the psychological change in perception that leads to this type of crowd behavior, there will be no hyperinflation.

So, you won't find me predicting USD-zone hyperinflation or even the risk of such any time soon, because the requisite social-psychological shift is a large and heavy object that needs a collapse in confidence to move from its current state of inertia.

Instead, I am genuinely concerned with a breakout of strong inflation, owing to a convergence of very large global trends: primarily the reaching of the Lewis Turning Point in non-OECD countries, and the relentless advance of resource scarcity. OECD currency users, meanwhile, from Japan to Europe to the US remain largely trapped within their currencies and their sovereign bonds, and will remain trapped in these until they aren't.

True, nothing goes on forever. Wake me when the managers of trillions of OECD pension assets panic out of their own currencies, and their own sovereign bonds, and I will finally be willing to entertain the risk of hyperinflation in OECD currency zones: EUR, JPY, USD. Perhaps this happens sooner than I anticipate. But I wager that it happens much later than most anticipate.

G"

There are three good points in Gregor's reply which I want to address, so I'll just list them out right here:

1. A psychological tipping point must be present in all hyperinflations. Me: But is this mass-psychological tipping point the cause, or simply a visible effect (symptom) that is sometimes mistaken as the cause? A loss of consciousness is also present in all deaths.

2. A social-psychological shift is a large and heavy object that needs a collapse in confidence to move from its current state of inertia. Me: Is it really so large and heavy to move? Or is it, as I wrote in this post, something that "can stop on a dime and reverse course 180 degrees overnight, from greed to fear, based on a single news item"?

3. "Wake me when the managers of trillions of OECD pension assets panic out of their own currencies, and their own sovereign bonds." Me: They may well panic out at some point, but again, will that be a cause or an effect? I will show that it is 100% effect and that, if that's what you're waiting for until you're willing to entertain the risk of hyperinflation, you will be a day late and a dollar short to make any preparations that were contingent upon entertaining the risk.

There's one other item that I want to mention because it also contributed to my decision to write this post. And that is this "no hyperinflation" wager offered up by someone in the MMT camp:

The United States will not experience hyperinflation (defined by 3 consecutive months of 6% Month over Month inflation according to the Billion Prices Project measurement of MoM inflation) from April 17th 2012 to April 17th 2017.

Many people claim the United States will experience hyperinflation, because of a massive increase in the monetary base. The monetary base has shown a huge increase as you can see at FRED under BASE, http://research.stlouisfed.org/fred2/series/BASE

The bulk of the increase in the monetary base happened in late 2008. This prediction gives nearly 9 years for hyperinflation to occur in the United States - many times any reasonable "long and variable delays" between monetary base increases and inflation could logically be linked.

Other people point to so called Quantitative Easing as a trigger for hyperinflation. The first rounds of QE happened in early 2009. This prediction gives 8 full years for the hyperinflationary impacts of QE to manifest in the United States.

Modern Monetary Realism (www.monetaryrealism.com) and Modern Monetary Theory (www.moslereconomics.com) both say there will be no hyperinflation due to the increase in the monetary base. MMR and MMT claim inflation is not likely at all. High inflation might be caused by either vastly higher energy commodity prices due to supply constraints or increases in the notional value the government pays for goods and services. The large increase in the cost of oil has not caused runaway inflation as of April 25, 2012, simply because it was not large and sustained enough. There has been no large increases in the values paid by the U.S. government through April 2012.

Since neither of these two circumstances has happened or are likely to happen in the U.S. during the next 5 years, there will be no hyperinflation in the U.S. as defined by the above prediction for the next 5 years.

Aside from the fact that it would be silly to take the hyperinflation side of a dollar-denominated bet, as I wrote in the comments, I am also not interested in taking this bet because it is a timing bet and I think that sends the wrong message. But I did want to mention it because it makes some specific points which are relevant to this post.

1. That "high inflation" might be caused by supply constraints (similar to the effect of resource scarcity which Gregor mentioned) or increases in the notional value (I think he meant price) the government pays for goods and services.

2. That because there have been no large price increases from 2008 through 4/25/2012, they are unlikely during the next five years.

I will show you that he is looking at the wrong things in saying that if base money creation in 2008 didn't cause price inflation yet, then it won't for the next five years. There are some important differences between today and 2008. For example, the federal budget deficit in 2008 was "only" $438B while the trade deficit was much larger at $698B. And in 2007 the federal budget deficit was even smaller, at 23% of the trade deficit. The 2007 budget deficit was only $162B while the trade deficit was $696B. Today that situation is reversed. So prior to 2009, the foreign sector was supporting the sum total of both the US private and government sector deficits, leaving some room for the private sector and foreign support to contract while the government sector expands. And that is exactly what happened.

Today the federal budget deficit is more than twice the trade deficit, and the foreign sector is supporting less than half while Fed printing supports the rest. Additionally, there are signs today that foreign support is waning even more. I will get to those later, but this is the very recipe for hyperinflation which FOA described, only an order of magnitude worse than in 2001 when he was writing. So anyone who wants to take that silly bet will only lose because the dollars they'll win will be virtually worthless.

A/FOA's Call

In his final month of full posts, from 10/3/01 through 11/3/01, FOA countered both the deflationists and the inflationists (who he grouped as the "hard money thinkers") in his drive to explain how the dollar reserve system will end in hyperinflation. Here's a quick sampling from that last month to show you what I mean:

FOA 10/3/01 - For decades hard money thinkers have been looking for "price inflation" to show up at a level that accurately reflects the dollar's "printing inflation". But it never happened! …

That "price inflation" never showed up because the world had to support its only money system until something could replace it. We as Americans came to think that our dollar, and its illusion of value, represented our special abilities… Oh boy,,,,,, do we have some hard financial learning to do.

FOA 10/25/01 - Somewhere in the 1970s era I was exposed to the thinking of several different deflationists. It seemed that all of their conclusions came to the same end: that dollar deflation would rule the day, no matter what... Deflation was always the final outcome.

FOA 10/3/01 - The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

FOA 10/9/01 - Dollar hyperinflation and super high gold prices are closer than many think.

FOA 11/2/01 - The evolution of Political will is now driving the dollar into an end time hyper inflation from where we will not return. That is our call. Bet your wealth on the other theorist's call if you want more of their last 30 years of hard money success.

Get the point? Good. Now one other thing is that, as I am explaining what I learned from FOA, FOA was explaining what he had learned from Another:

FOA 10/3/01 - A number of years ago, I began to learn from some smart people about the real political game at hand and how that would, one day, produce the final play in our dollar's timeline. Indeed, you are hiking that trail with us today; us meaning Euro / gold / and oil people. All of us Physical Gold Advocates that have an understanding about gold few Americans have ever been exposed to.

Now that you know the A/FOA position (hyperinflation camp, not inflation, not deflation), the A/FOA call ("hyper inflation from where we will not return. That is our call."), and the pedigree of the A/FOA message ("us meaning Euro / gold / and oil people… few Americans have ever been exposed to"), let's get on with the details.

Structural Support

FOA 10/3/01 - Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Why "structurally", why now?

For years now, "politically", the dollar system has had no support! Once again, for effect,
"Politically NO", "Structurally Yes"!

For another currency block to be built, over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained… Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

If our dollar is going to fall so fast and so far in value that it will be called "hyperinflation", then the dollar must be tremendously overvalued today, right? In fact, and these are FOA's words, "Dollars have no value at all except for our associating remembered trading value with them." A barrel of crude oil isn't worth $100 because a one hundred dollar bill has a value equal to a barrel of oil; rather we remember that a barrel of oil will trade for the same amount of natural gas that also relates to those same 100 units. Money is an associated value in our heads. It's not a physical item.

Yet for the last 30+ years, the fully fiat dollar, a purely symbolic token currency, has been behaving as if it actually is an item of value equal to the real goods and services the US has received through its perpetual trade deficit. Understanding how this was even possible is the only way to understand how it will end.

FOA 10/25/01 - I mean that our whole dollar landscape has now become just a trading asset arena: it's now evolving away from any meaningful currency use to trade for real goods. It can head in no other direction because our local economic structure, the USA economic base, cannot possibly service even a tiny fraction of the buying power currently held in dollars worldwide.

FOA 10/5/01 - The game is to let the US economy suffer from its own bloated expansion by moving slowly away from supporting foreign dollar settlement with CB storage. This is more than enough to end the dollars timeline as we are already stretched to the leverage limit. They know that Greenspan has but one policy to use and that will be super printing. He is doing it now, right on que!

And here we find the key to the kingdom: "supporting foreign dollar settlement with CB storage."

All currencies have the value of whatever they can buy. In a sense, they get their value from price tags offering prices denominated in their unit. But this MoE (medium of exchange) usage demand is not enough for the dollar. It is not enough that foreign goods are priced in dollars. The dollar requires another kind of usage demand: SoV (store of value) usage.

The reason for this is simple. The US is the only originator of new dollars and the US has run an unending trade deficit for 37 years, so the US has been exporting an unending stream of dollars for 37 years. To some extent, that pool of external dollars can circulate outside of the US as long as some foreign goods, like oil, carry a dollar price tag. But that is not enough.

Without foreign CBs supporting this system of foreign dollar settlement by mopping up the unending glut of dollar emissions, the market price mechanism would collapse the US trade deficit in a heartbeat.

Now I've got to make an important point about stock and flow here. We need not be concerned about the stock of dollars held by these foreign CBs, which today stands at more than $5T. The real danger is the unstoppable flow of dollars. No one needs to dump their dollar holdings to collapse the dollar. In fact, they won't dump and I don't expect them to dump, at least not until collapse is well underway.

All they need to do is to slow down mopping up the gushing, unending flow. Here's how fragile the dollar actually is. It is supremely overvalued because its SoV arena, its "trading asset arena" as FOA termed it, simply dwarfs the MoE arena where all currencies get their value. But what threatens the dollar's massive overvaluation most clearly and presently today is only that tiny, marginal portion of the flow: the deficit portion or the unstoppable net-emission of dollars.

Trillions of dollars circulate (change hands) every day, and orders of magnitude more sit idle in investments. But the real threat to all of it is the net-emission of dollars which must be mopped up (stored) by someone. This is the structural support that holds the whole system together: foreign CBs perpetually gorging themselves on Treasuries. It's not that they might sell their stock of Treasuries. The real threat is that they might slow or stop their rate of accumulation relative to our rate of emission.

Big Danger in a Little Marginal Flow

What do I mean by "marginal flow"? Well, first there's something you need to understand about flow. Stock and flow are not directly comparable because while stock is a measure of units, flow is a measure of units per time. We can look at the ratio of stock to flow over a period of time, but I'm not even interested in that in the case of the dollar. With dollar flows, we have the prices of goods and services which are far more relevant to the marginal (deficit) flow of dollars than any measure of the total stock of dollars.

I'm also not really interested in the flow of dollars within the monetary plane of "investments". Investments within the monetary plane change price regularly, sometimes with great volatility, yet without crashing the entire global monetary and financial system. But that real stuff in the physical plane, stuff like food, energy, medicine and industrial inputs, is (remarkably) relatively stable on its dollar price tags over time (at least compared to currencies going through hyperinflation). So we don't need to picture the dollar flow as a portion of the entire dollar stock, we can instead picture it as a flow of real goods and services as long as we focus on the goods and services portion of the BOP. And we also know that government spending (the federal budget) is all on goods and services in the physical plane, not on "investments" in the monetary plane.

So what do I mean by "marginal flow"? The US is the dollar's home, its creator and its legal tender zone. Most everything here carries a dollar price tag. But the US also trades with the world outside of its own currency zone, and in so doing it emits dollars. Last year the US spent $2.66T abroad, but we also took back most of those dollars by selling our stuff abroad. In fact, we took back $2.1T of the $2.66 we sent out. So netting it out, we net-emitted $560B last year. That's 560B dollars created here in the dollar creation zone and sent out into the non-dollar (homeless dollar) zone. That's marginal (deficit) flow. But there's more.

Before I get to the "more", let's reduce this to an easier time-frame. In a stable currency (like the dollar), the prices of necessities like food, energy, medicine and industrial inputs don't change much over a one-year time period. But prices can change overnight, and that's what I'm predicting. So I'm going to start quoting these annual statistics in daily flow amounts, by dividing the annual number by 365. That, of course, includes weekends and holidays. And while our beloved monetary plane closes down for weekends and holidays, the physical plane of necessities runs 24/7.

So looking at it as a daily flow, last year the US in aggregate emitted about $7.3B per day to the world outside of its boundaries and took back in only $5.8B. So the US is a net-emitter of about $1.5B per day. But there's more. In 2009, the federal budget deficit overtook our trade deficit in dramatic fashion. As I said earlier, in 2007 the federal budget deficit was only 23% of the trade deficit. In 2008 it was 63%. And in 2009 it jumped to 367% of the trade deficit. In 2010 the federal budget deficit was 259% of the trade deficit, and in 2011 it was 232%.

You don't see this comparison very often, budget deficit to trade deficit. And the actual percentages don't really matter much. What matters is that it went over 100%. What matters is that, since 2009, the US government (USG) is a net-emitter of more dollars than the US in aggregate emits to the outside world.

So what? Well, the USG emits about $9.8B per day while it takes in revenue of only about $6.2B. So the USG is a net-emitter of $3.6B per day. That's the marginal flow I'm talking about. And there's big danger in that daily flow of $3.6B.

In 2008, the US in aggregate (private sector and public sector combined) net-emitted $1.9B per day to the outside world. This is like a broken water main that cannot be shut off, and must be mopped up by someone. But that year the USG only gushed $1.2B per day. So the foreign mess we created was only 63% attributable to the USG. The other 37% came from private sector deficit spending. But ever since 2008, that broken water main gushing dollars abroad is 100% attributable to the USG alone. And not only that, but it's now spilling out here at home, on our own front lawn!

The USG today is spending $3.6B more than it is taking in, each and every day. That's a big mess of dollars flooding out of the USG. $1.5B per day is flooding outside of our zone while $2.1B is staying right here on our front lawn. This is all flow. It is ongoing and unstoppable. And it all must be mopped up by someone. And by someone, I mean either the foreign sector, the domestic private sector or the Fed buying up US Treasuries. $3.6B per day, an unstoppable, unending broken water main gushing out dollars. Marginal flow!

Don't be fooled by the misdirection. QE, twist, whatever; it's not about interest rates or helping the economy recover. It's 100% about disguising and managing this uncontrollable, unstoppable mess. It's more like a broken sewer line than a water main now that I think about it.

Sure, the Fed needs to keep interest rates from rising. Because what happens when interest rates rise? The value of the entire $35T bond market starts to collapse and bond holders panic. The Fed doesn't want that, so don't bet on them letting interest rates rise. But as I said, I'm not worried about the stock of dollars. I'm worried about this broken sewer line we call the federal budget deficit which means no one has to sell a single bond. In fact, someone has to continuously buy $3.6B more each and every day, including weekends and holidays.

And if prices start to rise as they do in a 'hot' inflation, I propose to you that the USG will not cut back in real terms. So if prices were to rise by, say, 10%, the USG net-emittance of dollars would rise by 10% to $3.96B per day. And because the trade deficit is 100% attributable to the USG ever since 2008, the trade deficit would also rise 10% to $1.65B per day. The USG will not be outbid for goods priced in dollars. Price is what determines who gets a scarce good, and the USG will not be deprived. They even said so in a recent Executive Order! And where are goods and services prices discovered? In the minds of investors with pensions and IRAs, or at the margin where dollars flow?

"Supporting foreign dollar settlement with CB storage"

For decades up until today, foreign dollar settlement has been supported by foreign CBs storing the glut of dollars emitted by the United States, just as FOA said. And by "support", he meant keeping dollar prices stable in the face of a glut of dollars coming out of the US, but to the detriment of the living standard of their own population.

This lack of dollar price inflation to match the monetary expansion of the dollar over the last 30 years has fostered many crazy economic theories to explain how the dollar can't collapse. In fact, most all economic theories today have some explanation or another describing the miracle of the magical dollar. But what they all miss is the political component which supported the dollar for all these years by mopping up that marginal (deficit) flow.

CB storage works, surprisingly, by duplicating the glut of dollars abroad. The CB mops up the dollars and then duplicates them by sending them back to the US public and private sectors (in proportion to each sector's deficit attribution, today 100% USG, 0% private sector) so they can be spent again, and also keeping those same dollars in CB reserves as a debt of the United States. Since 2009, it's all attributable to the USG, so every day, as a billion-plus dollar glut piles up, the foreign CB sends it back to the USG and also stores it in its own vault with a new billion-plus in Treasuries.

But in order to do this, that foreign CB needs to duplicate it again in its own currency. So the foreign CB prints an amount of its own currency needed to buy up the dollar glut, thereby transferring the monetary inflation to its own population and keeping the dollar price tags from changing. No (or low) dollar price inflation. Foreign dollar settlement continues. Support!

Not understanding the political element of foreign CB support is why low dollar price inflation has confounded an entire generation of hard money thinkers. And yet, again today, having finally given in to the miracle of the magical dollar theories, they will be once again confounded as the dollar collapses in hyperinflation upon the removal of that support. But fear not. FOA and I are here to help!

FOA 10/3/01 - For decades, hard money thinkers have been looking for "price inflation" to show up at a level that accurately reflects the dollar's "printing inflation". But it never happened! Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles. We gasped in horror at these numbers, but these rates never came close to reflecting the total dollar expansion if, at that moment, it could actually be represented in total worldwide dollar debt. That creation of trillions and trillions of dollar equivalents should have, long ago, been reflected in a dollar goods "price inflation" that reached hyper status. But it didn't.

That "price inflation" never showed up because the world had to support its only money system until something could replace it. We, as Americans, came to think that our dollar and its illusion of value represented our special abilities; perhaps more pointedly our military and economic power. We conceived that this wonderful buying power, free of substantial goods price inflation, was our god given right; and the rest of the world could have this life, too, if they could only be as good as us! Oh boy,,,,,, do we have some hard financial learning to do.

Over the years, all this dollar creation has stored up a massive "price inflation effect" that would be set free one day. Hard money thinkers proceeded to expect this flood to arrive every few years or so; the decades passed as those expectations always failed. Gold naturally fell into this same cycle of failed expectations, as the dollar never came into its "price inflationary" demise.

A number of years ago, I began to learn from some smart people about the real political game at hand and how that would, one day, produce the final play in our dollar's timeline. Indeed, you are hiking that trail with us today; us meaning Euro / gold / and oil people. All of us Physical Gold Advocates that have an understanding about gold few Americans have ever been exposed to.

Our recent American economic expansion has, all along, actually been the result of a worldly political "will" that supported dollar use and dollar credit expansion so as to buy time for Another currency block to be formed. Without that international support, this decades-long dollar derivative expansion could not have taken place. Further, nor would our long term dollar currency expansion produce the incredible illusion of paper wealth that built up within our recent internal American landscape.

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Why "structurally", why now?

For years now, "politically", the dollar system has had no support! Once again, for effect,
"Politically NO", "Structurally Yes"!

For another currency block to be built over years, the current world economy had to be kept functioning. To this end the dollar reserve system had to be structurally maintained; with its IMF agenda intact, gold polices followed and foreign central bank support all being part of that structure. Truly, the recent years of dollar value was just an illusion. An illusion of currency function and value, maintaining the purpose of holding the world financial and economic system together for a definite timeline. Politically, the world does not hate America; rather they hate the free lifestyle our dollar's illusion value brought us yesterday and today.

Now that the Euro block is passing a point where the Euro currency is viable; this same past dollar support that built America's illusion wealth will now fall away. In its place we will see the beginnings of a currency war like no other in our time.

This very change in structural dollar support is the same change that has been impacting our fed's actions for over a year now. This change is the difference between my call for super price inflation and the endless calls past hard money thinkers have made. Their on again / off again goods "price inflation" outlook is based on the same failed analysis that expects price rises because the fed was into another "printing money faster" cycle. I point out that that cycle has come and gone many times without a price inflation anything close to our total, long term, dollar creation.

Further

To this end, I have been calling for a hyper inflation that is being set free to run as a completed Euro system alters Political perceptions and support. That price inflation will be unending and all encompassing. While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!

[…]

Greenspan will not embark on a dollar building policy again! Even if he changes his mind about leaving. Unlike our past inflation cycles, he has only one act to follow because he must support the internal economic dynamics of this country as its dollar falls from reserve status. There will be no inflation "cycle" on this go around. The creation of a competing Euro currency block has changed his policy dynamic.

The fed has cut rates below perceived price inflation levels already and will cut again and again; even in the face of real, published, soaring, official statistical CPI. The die has been cast and the game is in process.

That was written in October, 2001. So what happened? It's simple really. From my post, Moneyness, the black dividing line is right around October, 2001:

People like to say that A/FOA got it wrong, because the timing didn't seem to play out exactly as they inferred it would. But I would like to proffer another view. Perhaps FOA was unaware of the lengths to which the PBOC was prepared to go in supporting the dollar and the US trade deficit over the next decade.

China was admitted into the World Trade Organization on December 11, 2001, one month after these posts. And it wasn't until 2002, after FOA stopped posting, that China really began to ramp up its trade with the US and to purchase US bonds in size [mop up the deficit flow of dollars keeping dollar prices low and stable]. From '99 to '01 China's Treasury holdings were flat at around $50B, but from 2002 they began a parabolic rise that has now ended and is once again flat.

So if China has backed off from supporting the dollar today, in the same way that the European CBs had backed off right when FOA wrote these posts, well then perhaps they are more relevant today than the day they were written.

Here is Ben Bernanke from a speech in 2005 noticing the shift in dollar support from "industrial countries" (Europe) to "developing countries" (China) which took place sometime "between 1996 and 2004":

The collective current account of the industrial countries declined more than $441 billion between 1996 and 2004, implying that, of the $548 billion increase in the U.S. current account deficit, only about $106 billion was offset by increased surpluses in other industrial countries. As table 1 shows, the bulk of the increase in the U.S. current account deficit was balanced by changes in the current account positions of developing countries, which moved from a collective deficit of $90 billion to a surplus of $326 billion--a net change of $416 billion-- between 1996 and 2004.

Of course in 2005 the federal budget deficit was only $317B while the trade deficit was $708B. So the foreign sector was still supporting the sum total of the US public and private deficits by mopping up the entire glut of dollar net-emissions to the tune of $708B per year, or $1.94B per day. And this would be a good time for me to put down a common myth propagated by Ben Bernanke as well as, well, everyone else.

It is a myth that QE is a result of the Fed's concern for the economic outlook or even about keeping interest rates down. That's just what they want you to be focused on, rather than the real reason for QE. Notice that QE began at the same time as the federal budget deficit overtook and surpassed the trade deficit. Not only that, but the amount of QE matches close enough for government work the difference between the budget deficit and the trade deficit.

It is also a myth that QE is sterile money creation because (as they like to say) it is all just sitting on the banks' balance sheets as excess reserves held at the Fed rather than circulating in the economy. In fact, it is ALL circulating in the economy because the USG spends that money into the economy. Government dollar emissions simply come with bank reserves. If you don't understand this, please go back and review my banking system model in Peak Exorbitant Privilege.

So if you're watching "economic indicators" and Treasury market figures and interest rate curves trying to guess if there will be more printing, aka QE3, you should instead ask yourself if the USG will cut a quarter of all its spending habits this year, or ever. That would be roughly equivalent to cutting all of Medicare, or all of Social Security, or all of defense spending, or a third of each, just to give you an idea of how much they are printing.

What we have today, in essence – nay, in reality – is the USG running a daily deficit of $2.1B against its own economy and another $1.5B per day against the rest of the world. FOA explained that what this means in essence – in reality (when you are the printer of the global reserve currency) – is the fleecing of the standard of living of someone else:

FOA 2/26/00 - So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!

FOA 3/10/00 - My point was that their actions can only be justified from a position of "buying time"… Their Central Banks support polices were a decision to waste their citizen's productive efforts in a process that held together a failing currency system.

FOA 4/19/01 - What changes is the recognition of what we do produce for ourselves and what we require from others to maintain our current standard of living… We will come to know just how "above" our capabilities we have been living. Receiving free support by way of an overvalued dollar that we spent without the pain of work.

FOA 7/16/01 - The American dollar has bought its makers a lifestyle that is at odds with this new thrust in money use. A reserve currency today must allow its value to be set solely upon its money function [MoE arena], not its function of retaining wealth [SoV arena]. Use trends today are forcing money creation policy and money values to be determined by wealth outside the official money realm. All the while the dollar holders are fighting to stop this from happening.

FOA 7/20/01 - For years American lifestyles encouraged its political system to protect their banking /debt credibility at all costs; so we could buy others' real goods without sending real wealth to pay for it. We did this in the only way we knew how; in body, mind and spirit, our political economic purpose promoted the dollar and its debt to be as good as gold and a substitute for real wealth holdings. Even a substitute for real wealth to be held in reserve behind other currencies!

FOA 10/5/01 - Even the third world didn't want to hear it. They figured that any return to a hard money system would hark back to a time they remembered well. These guys suffered during the early century and no one was going to tell them that the gold standard wasn't at fault. The US is today, and was then, robbing them blind but the situation seemed, to them, that this new dollar standard was building them up. Looking at it all,,,,, we robbed the Japan life style standards the most. All to buy us an almost free standard and they loved it.

FOA 10/8/01 - We managed this threat with help from our Euro friends; somehow thinking they enjoyed and wanted our fleecing their lifestyle to the same degree we did it to the rest of the world. Their cooperation, we will find out, was but a structural policy that bought time; time for a dollar replacement to be made.

FOA 10/26/01 - Again; this all works as long as the world "buys into" using our dollars. As I said; an expanding fiat works to grow the economy thru expanding credit buying power because the fed can support the system with credit creation that has no "inflation premium". That lack of premium only exists as long as Americans can exchange free credit for real physical goods. Once this perception changes it's over. Once the world understands that it's not local US goods that stands behind dollar growth, but less expensive foreign goods,,,,,,,,,, the stage is set for our "supporters" to sell to themselves! Making themselves
"lifestyle rich". All they need is Another currency unit.

Here's the bottom line, and the absolute correct way to view the USG's deficit spending today. Starting in 2009, the US private sector was no longer "fleecing lifestyle" from the rest of the world through the exorbitant privilege of its currency (a privilege which began in 1922 and peaked in 2005). Beginning in 2009 the USG started fleecing lifestyle from its own economy (in addition to the rest of the world) while ironically calling it "economic stimulus". This is the meaning behind these shocking images from 2009, which I first used in my 2009 post, No Free Lunch:

Global resources are being fleeced by the USG at the rate of $1.5B per day, while American resources, above and beyond the normal "internal revenue service," are being fleeced at the rate of $2.1B per day. The foreign resource fleecing is being enabled by foreign CBs (mostly China up until recently) buying Treasuries, and the local resource fleecing is enabled mostly by QE, but also partly by your pension fund manager buying you some of those tasty yield-free Treasuries.

It is no wonder at all that the stock market is doing relatively well given the unstoppable domestic sewage – I mean dollar – leak that is the USG's deficit spending. Unfortunately (for everyone) the stock market doesn't sterilize the sewage against goods and services price inflation the way the Treasury market does. The dollars just flow right through the stock market to the sellers.

But as I wrote above, it doesn't really matter what percentage of the trade deficit the budget deficit is, just that it's over 100%. As long as it's over 100%, the entire trade deficit is 100% nominally attributable to the USG, which means if we get some "hot inflation" either the USG will have to give up some of its consumption in real terms, or else defend its "lifestyle" with the printing press, right there at the margin where prices are discovered.

I don't expect this inflation to originate inside the US. In fact, as long as foreign CBs are structurally supporting the dollar reserve system by mopping up our $1.5B per day outflow, the American people are getting a pretty good deal on their own fleecing. I mean, even though we are being fleeced of $2.1B per day in "lifestyle" by our own government (in addition to taxes), for that fleecing we are actually receiving $3.6B per day back in government. ROI! So even though government is terribly wasteful, our wasteful government is still being subsidized by y'all! "Life is so fucking good I can taste it in my spit."

And because the US private sector deficit spending in aggregate has contracted to well below zero since 2008, I have a hunch that a lot of the fat has been cut out of the "basket" of US imports. The trade deficit has dropped from $698B in both 2007 and 2008 to $500B in 2010 and $560B in 2011. I bet all of that ~$130B drop has come from private sector consumption reduction (private sector crashing its living standard). In fact, the "private sector consumption drop" is probably greater than ~$130B and the USG has made up some of it by expanding its consumption. But the USG doesn’t consume cheap consumables from Walmart. The USG consumes important stuff… stuff we generally call necessities.

Looking at the top imports from 2008 as well as the fastest growing imports of significance (say, over $5B per year at least), the top "necessities" are oil, medicinal preparations, petroleum products, coal, fertilizers and pesticides, food oils, oil field equipment, feedstuff and foodgrains, unmanufactured steelmaking materials, industrial organic chemicals, and semifinished iron and steel.

Again, this is just a hunch, but that's probably a good list of things to watch for price increases that could quickly turn hyper when the USG refuses to be outbid… if and when the foreign CB "structural support" slows down and the rest of the world stops exporting necessities to the USG for nothing but paper that will soon be worthless. So now that we know what to watch for, let's take a look at the state of that "structural support" today.

The US Treasury puts out a list of Foreign Holders of Treasury Securities. The latest update, which was put out on April 30th, covers Treasury holdings through February 2012 and shows each month for a whole year, in this case beginning in February 2011. The top row is China because China has the most Treasuries. And looking across for the year we can see that China's holdings are pretty flat, except that they peaked at $1.3T in July and then dropped all the way to $1.178T in February.

It looks like Japan (line 2) really picked up the slack though, buying $205B in Treasuries from February to February. I guess we better hope that Japan keeps running a trade surplus! Oops…

Japan Swings to Trade Deficit

4/19/12—Japan swung back into a trade deficit in March as a steady rise in energy imports outweighed a rebound in automobile exports after last year's flooding in Thailand.

But fear not! Zero Hedge is on the case:

2/29/12 - Best advice: keep a track of that Chinese trade surplus. If it becomes a deficit (just like Japan did recently), that is the first signal that things are changing dramatically from an international flow of funds perspective. It also means that unless the US finds subtitute demand, most likely from within, the only remaining buyer will be the entity that already has the largest holding of US paper - the Federal Reserve.

That last year of Treasury data, from Feb. to Feb., shows that the increase in foreign Treasury holdings covered the trade deficit for that year. If we look down at the last line, grand totals, and subtract Feb. 2011's total from Feb. 2012's we come up with an increase in "structural support" of $633.3B. And if we add up the monthly trade deficit for those same months we come up with $565.5B. Once again, close enough for government work. So I guess it's a good thing someone's still propping up the dollar. But wait! Here's another one from Zero Hedge only ten days later:

China Posts Biggest Trade Deficit Since 1989

3/10/12 - In addition to all the US election year propaganda and delayed after effects of central banks injecting nearly $3 trillion in liquidity to juice up the US stock market, something far more notable yet underreported has happened in 2012: the world stopped exporting. Observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil."

[…]

China total imports and exports - whoosh:

China trade balance by region - whoosh:

China trade with the US - whoosh:

China trade with the EU - whoooooooooooooooooosh:

However, definitely no whoosh here:

Oh, and let's not forget this particular whoosh:

...Is it starting to make sense now?

You can nitpick that data all you want, but one thing is as clear as an azure sky of deepest summer. This is a very different picture from the China of 2002 embarking on a "parabolic rise" in US dollar "structural support". In fact, even though it is true that some combination of Japan, oil exporters, Caribbean banking center, Taiwan, Switzerland, Russia, Luxembourg, Belgium and Ireland (to name a few) managed to cobble together the necessary support last year, the dollar is now living off of a willy-nilly support system rather than the "structural support" it enjoyed for the last 30 or so years. If FOA was here, he'd probably say something like this:

The relatively small goods "price inflation" so many gold bugs looked for will be far surpassed and the "hyper price inflation" I have been saying is coming is now being "structurally" set free to run.

Of course "hot inflation" is coming! But how long will it last? How long can it last without the structural support of foreign CBs mopping up the dollars the USG will be printing in order to defend its own "lifestyle" in real terms? How far can prices rise without hitting that hyper feedback loop at the margin where prices are discovered? The USG is net-emitting $3.6B per day today, and the problem is that the USG is not an economy. It is a consumer and a printer. So the daily net-emission of global dollars is now backed, not by an economy, but by the largest consuming entity ever known to man!

Lee and Paul are correct that the commercial banking system will soon be fully reserved. But I don't think those new reserves will come directly from the Fed in exchange for bank assets. Now that the government deficit has surpassed the trade deficit, all foreign support is Treasury buying, not private sector debt like MBS. The crossing of this Rubicon means that maintaining the Treasury market takes structural precedence over all other assets. It also means that every new dollar the USG decides to spend puts new reserves into the private sector banking system, raising its ratio of reserves to deposits. So the new reserves coming into the banks will be coming from domestic USG deficit spending via QE or whatever they decide to call it next time. And I believe that those bank assets and "unreserved credit" will simply die on the vine of worthless tokens as the USG crushes its own currency defending its lifestyle.

Gregor is correct about the "benign" inflation we've had, not just for the past decade, but for the past three or four. This is what FOA was talking about. "Yes, we got our little 3, 4, 8 or 9% price inflation rates in nice little predictable cycles." But hyperinflation "never showed up because the world had to support its only money system until something could replace it." The euro was born, then came China, and my call is that hyperinflation "is now being 'structurally' set free to run."

If you print enough money, you can get the price of everything to rise. Just look at Zimbabwe if you don't believe me. But printing doesn't make all prices rise in unison. Gregor makes a good case for the "Middle Class Squeeze" combined with asset price deflation, an inflation/deflation double whammy, as well as resource scarcity-driven subsistence inflation leaving no discretionary spending room for the poor or those in developing countries. And from the "Executive Summary" of his part 2: "Rising wages in the developing world create upward price pressure everywhere globally." I agree with Gregor on all counts!

So yes, I agree with Gregor that "hot inflation" is coming and it's a real risk. But inflation generally suppresses consumption in real terms. As Gregor says, "it quickly begins to drive out spending for discretionary goods in favor of true basics." But this doesn't apply to the USG who can "spend" infinitely in extremis. Gregor concludes his part 1 with this:

The United States currently enjoys reserve currency status, which enables it to borrow cheaply, and which keeps capital circulating through our government bond markets, which are the largest in the world. Given the backdrop to our post-credit-bubble environment, it is now the consensus view that we will cut a path similar to Japan’s as we oscillate from weak growth back to the stimulative rescue policies of the Federal Reserve.

There is therefore a sense of complacency about an escalation in prices.

That highlighted portion is the premise on which virtually everyone in America is operating, without even understanding what it really means. It is the miracle of the magical dollar theories laid as the solid foundation under any and every discussion. One of my readers, Michael, a medical doctor, was attending a conservative "Tea Party-ish" meeting in California yesterday. The meeting included US Senators and Representatives, and they were totally operating on the premise of the miracle of the magical dollar theories. You can read his interesting report here.

The point is that the premise rests on 90 years of history which only makes sense if viewed properly. It rests on 50 to 60 years of political support followed by 20 years of structural support from Europe and another 8 or 9 years of structural support from China. Today both political and structural support are gone, and the "solid foundation under any and every discussion" of monetary matters in America is what I am generously terming the "willy-nilly support" of the rest of the world. In other words, we have no say in the matter. Our fate is in their hands. Which kind of renders the premise invalid, doesn't it?

I agree with Gregor that "hot inflation" is coming whether you like it or not, for all the reasons he explains and more. My only disagreement is that Congress will take it more hyper than we've seen in all of fiat history, so fast it will peel the skin off your face, because they are operating on a false premise. The miracle of the magical dollar theory premise is a false premise because it completely misses what's going on. And anyone who's waiting for those operating under a false premise to panic out of their dollar holdings before even entertaining this reality is like someone waiting for the loss of consciousness before entertaining the possibility of death.

The dollar is so vastly overvalued today because the rest of the world has kept it on life support for 30 years past its expiration date. It is the stability of dollar prices at that small marginal flow that sustains the illusion of wealth in the entire, massive monetary plane. And yet the modern "hard money thinkers" think that we can somehow retain this level in real terms by simply devaluing the dollar against gold and then managing that new "gold value". I wish all the modern hard money thinkers – you know who they are so I don't need to mention any names – would just take a few minutes and listen to FOA and maybe, just maybe, see how wrong they are. It's all in that last page of The Gold Trail, but I tried to make it bite-sized in a recent blast of Tweets. #HMS means Hard Money Socialist which describes all of these guys. If you don't understand, go see for yourself. These are all FOA quotes from that last page (edited for Twitter):

"Truly, to this day, #HMS think their ideas are the saving grace of the money world. It isn't now and never was then." #FOA

"This political process of fixing money to gold has ruined more economies, governments and societies than anything." #FOA

"It just flies right past them that the ECB wants gold as a dollar replacing *asset*, not local money backing." #FOA

"#HMS call for "official money gold" as the only way governments can go. That will not ever be allowed again." #FOA

"These are the same people that hold free markets on a high plateau as the goal for everyone. Yet, they talk a story of gold control." #FOA

"Fortunately for the majority of world physical gold owners, the hard money socialist game has ended." #FOA

"Late comers to this understanding will encounter a true free market, but their buy in price will be at a much higher natural level." #FOA

"In the late 60s, #HMS seemed so natural. However, even then, I had some serious people pointing me in a different direction." #FOA

"This is all happening while Western style Hard Money Socialists are defending their stance by saying Euro is just another fiat. Ha!" #FOA

"Western thought is gold=money. This simple picture from the middle ages banking renaissance is used to bastardize the gold story to this day." #FOA

Please go read that last page of The Gold Trail after reading this post. Start at the bottom and read up. It's in reverse order, unlike the first five parts. There's so much more there than the little bits I included here. It's the very last words he wrote before he stopped writing. I know that some people think I approach these A/FOA archives somewhat religiously. Well, I do!! Look at the subtitle at the top of this blog! Not in any way similar to spiritual faith, but My God, has anyone – and I do mean ANYONE – explained what's going on today better than these guys?

Sincerely,