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Read what Dr. Gary North, Ph.D.,
Has to comment on his member only website, from Marc Faber:

The Z-Word: Marc Faber on Hyperinflation in America
Gary North

May 28, 2009

    Marc Faber [FAWber] was interviewed on Hong Kong TV. He says he thinks hyperinflation will hit America. The real thing: Zimbabwe-style. The story is here.

    Faber is a careful analyst. He shorted China's stock market in early 2008. He is not a sensationalist. He is interviewed on American financial news show

"I am 100 percent sure that the U.S. will go into hyperinflation," Faber said. "The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate."

    I think he is incorrect. I don't foresee Zimbabwe-style price inflation. But I think 30% per year is likely.

    Why do I think he is incorrect? Because of the unwillingness of central bankers to destroy their nations' currencies completely. Undermine them, yes. To keep the national bond markets open central banks inflate. This keeps rates down until the investing public perceives that inflation will cut the value of the money paid by the bond-sellers. Then long rates rise.

    For a time, the FED will support U.S. bonds at low rates, to keep the market open. But when price inflation exceeds 30%, the FED has to think twice about more inflation. The destruction of the corporate bond market becomes a real possibility at any inflation rate above 20%.

    The FED's job is to save the big banks. Its official job is secondary to this. That job is to provide a market for government bonds.

    When the interests of large commercial banks come into conflict with the interests of Congress, the FED will side with the bankers.

    The FED will let the Treasury default. That is what is implied by the FED's unwillingness to sacrifice corporate bonds for the sake of low rates on U.S. government bonds.

    The government will tell the FED to keep the Treasury debt market alive. But the FED will assert its independence when 30% price inflation destroys the mortgage market.

    At that point, we will get a depression. The government will default on Social Security & Medicare by delaying retirement and shoving the costs on physicians, who will pull out.

    There will be a default. If it's hyperinflation, the division of labor will collapse. It would lead to the destruction of private capital. Barter would replace credit cards and even currency. That would literally kill people. Suppliers will pull out. A high division of labor society cannot tolerate hyperinflation, where prices mean nothing. The U.S. is not rural Zimbabwe.

    Hyperinflation penalizes urban residents. Farmers win. That means 2% of the U.S. population. The FED will not sacrifice the nation's urban residents for the sake of a few million aging farmers.

    Anyone who thinks hyperinflation is likely should move to a rural area and hunker down. The division of labor will collapse under hyperinflation. Riots, real starvation, and looting will be the order of the day in cities.

Editor's Note:

    Marc Faber resides in Hong Kong and is publisher of the Gloom, Boom & Doom Report.

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