Sunday, 04 Nov 2012

Whoever wins Tuesday's election — whether it's President Barack Obama or his Republican challenger Mitt Romney — will battle economic depression and hyperinflation, thanks to years of a lack of political will to pay down debts, private-sector economist John Williams wrote on his ShadowStats website.

Monetary-stimulus measures that have weakened the dollar to jolt the economy will send the economy into depression at a time of soaring prices, likely around 2014, he wrote:  "The next presidential term most likely will see the onset of a domestic, hyperinflationary great depression."

"The long-term solvency issues of the United States remain the primary threat to domestic financial, economic and political stability and to the relative global valuation of the U.S. dollar. The dollar’s vulnerability to this issue has been seen consistently with ongoing failed federal budget negotiations and ever-expanding quantitative easing by the Federal Reserve."

The Federal Reserve has pumped trillions of dollars into the economy since 2008 via three rounds of stimulus measures known as quantitative easing.

Under quantitative easing, the Fed buys assets such as mortgage debt or Treasury holdings from banks, pumping them full of liquidity in a way that pushes interest rates down across the economy to encourage investing and hiring.

Side effects to such extraordinary measures — dubbed by many as printing money out of thin air — include rising stock and commodity prices, a weakening dollar and mounting inflationary pressures.

Loose monetary policies coupled with crushing U.S. debt burdens will prompt investors to cease viewing the country and its currency and debt as safe-haven assets, which will lead to economic depression and hyperinflation.

"Neither Obama nor Romney, as president, has much if any chance of stabilizing the economy or fiscal conditions in the short-term, and of preventing a hyperinflationary collapse of the U.S. currency," Williams wrote.

"Where Mr. Obama, upon entering office in 2009, had the chance to change the future of U.S. fiscal conditions dramatically, he did so, but in the wrong direction," Williams added.

"Mr. Romney has promised to take immediate actions to balance the budget, to restore fiscal normalcy. Any President, new or re-elected, deserves the benefit of the doubt—irrespective of truly intractable deficit difficulties that largely were ignored during the presidential race."

Fed officials themselves are at odds over the U.S. central bank's loose policies, with most favoring accommodation and others sounding alarm bells over inflation, most notably Richmond Federal Reserve President Jeffrey Lacker, who dissented against several Federal Reserve decisions.

"The behavior of inflation is fundamentally attributable to the actions of the central bank, while growth and labor market conditions are affected by a wide variety of factors outside the Fed's control," Lacker recently told a business conference in Roanoke, Virginia, according to prepared remarks from his speech.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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