Loan Modification

The reason why there has been tame inflation so far is that banks have been creating commoditiy (and stock) IOUs at the same rate they created dollar IOUs. Below is a graphic that illustrate this massive credit bubble which has grown in commodity derivatives.

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ALL episodes of hyperinflation have been caused by rampant money printing. However, there has never before been a country which has leveraged every single asset class to the extent that Wall Street has done. The hyperinflation that is about to hit the US will be caused (at least initially) by deflation of non-dollar assets (stocks, gold, grains, etc?). The dollar?s collapse will therefore be more rapid than any previous period of hyperinflation.

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We now have a twisted situation where insolvent financial institutions can't even sell bonds (promises to deliver dollars at a later date) without an FDIC guarantee, but those same financial institutions have no problem selling investors OTC commodity derivatives (promises to deliver commodities at a later date). While there is no transparency to the OTC commodity derivative market, simple logic dictates that financial institutions are taking advantage of the complete absence of risks premiums and cheaply selling enormous amounts of commodity denominated debt to meet funding needs. As long as counterparty fears remain absent from commodity derivative markets, the number of financial institutions turning to those markets for funding will continue to grow, causing the commodity credit bubble to grow ever larger.