What Happens In Iceland Doesn’t Always Stay In Iceland

Posted at 7:04 PM (CST) by & filed under General Editorial.

Dear Jim,

I believe what happens to the economy in Iceland will be a test-case for the US. Iceland is going for an inflationary depression since the banking system crashed and foreign investors stopped investing in the country. The same is starting to happen in Eastern Europe. I suppose it is only a matter of time when foreign investors stop investing in the US. Then you will soon have the Iceland experience. Shouldn’t we be looking for Weimar in Iceland, then Eastern Europe, then the US, and then the planet?

“Iceland’s economy may contract as much as 10 percent, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. The central bank on Oct. 15 cut the benchmark interest rate by an unprecedented 3.5 percentage points to 12 percent, indicating policy makers have given up trying to control inflation. Prices may surge as much as 75 percent in coming months, Christensen estimates. “

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Also important, Vladimir Putin warns his countrymen about buying dollars. He called it ‘dubious business’. I guess you are on his side now!

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Thank you for some great articles in the last week.

All the best!
CIGA Jeroen

Dear Jeroen,

The most difficult concept for the professional public to understand is that hyperinflation can exist along with a totally disastrous economic environment. Hyperinflation falls flat because it fails to take into account the infinite velocity of money that a Weimar creates during a depression economy as a product of throwing monetary discipline at the wall.

When you pay people three times a day to keep up with prices, consider the mammoth daily increases in all private and business transactions in terms of the total number of currency units. What happens to the velocity of money? The turnover increases with the rate of inflation until both are hyper creating an unstoppable spiral.

Few understand that monetary inflation proceeds and sustains price inflation. For this reason world business in a rat hole with credit still jammed up will lead to hyperinflation in 2009-2010.

If world business is perceived to have bottomed and credit flows are re-established, this will bring hyperinflation in 24 hours.

We have heard both Russia and China chime in today on their clear perception of the pre-election falsely valued US dollar and government interference in not only gold but energy and food.

The PPT is working overtime on those index spreads but they only have a short time (13 to 88 days) before they have to throw it into what is most likely inexperienced hands.

Yes, a planetary Weimar is on the menu. Russia, the Middle East and China may just be the top survivors. Africa might just come into its own in such a scenario due to the amount of raw material and gold resources they have.