Economist John Williams: Hyperinflation by 2014

Ridiculing Europe’s handling of the financial crisis has become a popular go-to talking point for the dollar bulls.  Yes, there are still some diehard old timers on Wall Street (Art Cashin, not among them) who cannot image their Wall Street careers without the benefit of a credit bubble gravy train.  Those same tired cheerleaders also tell us that a rebound in the U.S. economy is inevitable “because we always bounced back before” in the hopes of sucking the public into the markets one more time in order to make those bonuses.

The U.S. may bounce back in nominal terms, priced in dollars, but not in real terms, argues economist John Williams of www.shadowstats.com.  Williams told listeners of Financial Sense News this weekend he believes the March 2009 collapse is merely a precursor of even more grave consequences for an already battered dollar following the $5+ trillion of stimulus the Fed has injected into the financial system since the start of QEI during the spring of 2009.

“Hyperinflation in the United States will be particularly painful,” said Williams, noting that the U.S. has no backup currency to the dollar in the event of a sudden panic out of the dollar, which he believes will be not later than 2014.  At least in Zimbabwe, he said, commerce continued via a black market settled in U.S. dollars.  But in the U.S., “we don’t have a backup system here,” he said.

Williams acknowledges the hesitancy among central bankers to trigger a run on the U.S. dollar until they’ve diversified enough dollars into other currencies (such as the euro, some of the hard currencies, and gold) to weather the coming collapse.  That is especially true in the case of the Bank of China, which has on numerous occasion complained about U.S. monetary policy and the effects on food and energy prices in the People’s Republic of China.

Moreover, China’s state-sponsored rating agency has already stated that the dollar is systematically being devalued, and has lowered its rating of U.S. Treasury debt.  The Chinese want out of the dollar.

“They [the Chinese] want to get out of the dollar as quickly as they can,” said Williams.  “No one wants to create a panic.  Everyone wants to get out as whole as possible.”

Williams expects the inevitable fate of the dollar will shock the world. It’s going to zero—in real terms, in purchasing power.

“Gold is the primary hedge against what’s happening here and what going to happen to the purchasing power of the U.S. dollar, which is eventually going to decline to zero,” he warned.

As far as the timing of a dollar collapse, Williams told FSN’s Jim Puplava it could happen at any time.  There are numerous possibilities or surprises lurking that could trigger a panic, precipitated by politicians or a Black Swan event.  But the outside of his timetable for a dollar collapse is 2014; but he gives a better than 50 percent chance of the event happening sooner.

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