Bankers and politicians will choose inflation

The ECB doubling their balance sheet and funneling trillions to European banks will not solve anything. The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their phony promises. Bankers and politicians will choose inflation. They believe they can control the levers of inflation, but they have proven to be incompetent, hubristic, and myopic. The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.

Mr. Quinn believes that excessive debt, rather than being addressed, will continue to be abused by government leading to an inevitable end:

… the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression. The largest banks in Europe are leveraged 40 to 1, therefore a 3% reduction in their capital will cause bankruptcy. Once you pass 90% debt to GDP, your fate is sealed.

Contrary to what you have been told about de-leveraging under way, Mr. Quinn states that is not the case (my emboldening):

In a world inhabited by sincere sane leaders, willing to level with the citizens and disposed to allow financial institutions that took world crushing risks to fail through an orderly bankruptcy process, debt would have been written off and a sharp short contraction would have occurred. The stockholders, bondholders and executives of the Wall Street banks would have taken the losses they deserved. Instead Wall Street used their undue influence, wealth and power to force their politician puppets to funnel $5 trillion to the bankers that created the crisis while dumping the debt on taxpayers and unborn generations. The Wall Street controlled Federal Reserve provided risk free funding and took toxic mortgage assets off their balance sheets. The result is total credit market debt higher today than it was at the peak of the financial crisis in March 2009.

The country is experiencing accelerating rates of money inflation. Thus far, this money growth has not translated into price inflation primarily because of reporting bias in the CPI index and the fact that we are in a recession (regardless of whether the government calls it one or not). Any fiat money system survives only based on confidence. Once confidence is lost, so too is the currency. Quinn succinctly describes the anomaly supporting our currency:

The world has total confidence in pieces of paper being produced at a rate of $3.7 billion per day. Confidence in Ben Bernanke, Barack Obama and the U.S. Congress is all that stands between continued stability and complete chaos. What could go wrong?

Mr. Quinn’s forecast is worth reviewing. It is chock-full of informative graphs and strong opinions. As an example, the following graph supports his argument that we are still in recession (depression?) and that we have become a corporatocracy:

Quinn is not one to mince words or opinions. Is his forecast reasonable? Yes, although predicting it to hit in 2012 may not be. It seems too compressed a period for all his events to play out. Over a bit longer time frame, perhaps. It is more difficult to forecast timing than quantities. Generally, institutions take longer to die than we expect.