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Is Ben Bernanke The Second Coming Of Rudolf von Havenstein, The Central Banker Responsible For Germany's Hyperinflationary Collapse (And Ostensibly WWII)?
SocGen's Dylan Grice provides a gripping account of Germany's hyperinflationary episode, in which he charts the extended parallels between not just the precursor economy that lead to a 16,579,999% inflation in 1923 Weimar Germany, and modern day developed (and highly leveraged) countries, but between Germany's then central banker Rudolf von Havenstein, and the Greenspan-Bernanke duo. And while we know how "der Geld Marschall's" Weimar experiment ended, the future before the U.S., as a result of the Maestro's (both Senior and Junior) almost identical policy response is still open-ended. As the future of America is now exclusively in the hands of insidious economists, the following insight from Grice into the utility of economic models and decision-making should be sufficient to dash the hopes of any optimist for a favorable outcome.
"Is anything more dangerous than a nonsensical idea taken seriously? The esteem of economists has been dented by the financial crisis, though not so severely that the financial community treat economists? views with anything approaching the derision they deserve. The macroeconomic meme is resilient indeed! Sadly, the situation isn?t new. Macroeconomic theory has a long and
distinguished history of seducing policymakers into thinking utopia is
just around the corner, a trick brought about by untested hypotheses
masquerading as empirical knowledge. Believe it or not, a school of
economic thought that was prominent in Weimar Germany during the
hyperinflation ? and particularly at the Reichsbank as it was
aggressively monetising the government deficit ? held that the
escalating money supply had nothing to do with the exploding rate of
inflation! More on that later. For now, in this new world of policymaking experimentation, it?s worth recalling the British Ambassador to Germany?s observation on the hyperinflation that ?'no one could anticipate such an ingenious revelation of extreme folly to which ignorance and false theory could lead.'"
Hopefully, once the true span of the Great Depression v2 is grasped, once all extend and pretend measures are exhausted, modern society will do away with economists once and for all.
For those unfamiliar with the greatest failed experiment in developed world monetary policy, here is a brief primer.
For all the ink spilled analysing two of the 20th century’s greatest economic tragedies - the Great Depression and Japan’s lost decade(s) - little has been spent on arguably the greatest of them all: Germany’s hyperinflation. It may be because we’re confident we understand it. Everyone knows that unfettered money printing eventually leads to explosive inflation, don’t they? The thing is, economists knew that then! So what was going through the mind of the central bank head who presided over history’s most pathological currency debasement?
It is often said that the Great Depression so thoroughly destroyed the social fabric of the industrialised world in the 1930s that WW2 became inevitable. But this overlooks the role of Germany'?s hyperinflation, the horror of which seems underappreciated in the Anglo-Saxon world. At the height of the crisis in 1923, for example, industrial production fell by the staggering annual rate of 37%. In roughly the same single year, the unionised unemployment rate rose from under 1% in late 1922 to nearly 30%! (and according to Frank Graham, almost half of the total workforce became unemployed at this time). This, remember, is at a time when the rest of the world economy was booming.
As far as economic pain goes, this probably surpasses the Great Depression yet to come. But it only tells a part of the story: the nation?s wealth, held largely in German government bonds was completely wiped out. We can only imagine the nationwide psychological devastation of a proud Germany already feeling victimised and humiliated in the aftermath of WW1. In his ?'Ascent of Money’, Niall Ferguson quotes Elias Canetti?s recounting of his hyperinflation experience as a young man in Frankfurt, “It is a witches’ sabbath of devaluation, where men and the units of their money have the strongest effects on each other. The one stands for the other, men feeling themselves as ‘bad’ as their money; and this becomes worse and worse. Together they are all at its mercy and all feel equally worthless”. Such was the condition of Germany before the Great Depression had even begun.
Indeed, it is a tantalising counterfactual: would Germany have fallen under the Nazi spell which would ultimately lead the world to a second World War had she not borne the grave burdens of the Great Depression already exhausted, despairing and with ruptured social cohesion? We?ll never know, of course, and anyway such events are never so simplistically mono-causal. Nevertheless, it is possible that German hyperinflation played a decisive role in the build-up to WW2 and therefore logical to conjecture that the central banker who presided over that hyperinflation is the most influential figure in history you?'ve never heard of.
Next - presenting Ben Bernanke ideological father: Rudolf von Havenstein, after whom came the flood.
That central banker was a certain Rudolf von Havenstein. Born in 1857 into an aristocratic Prussian family, he trained as a lawyer and rose to become a county court judge before joining the Prussian Finance Ministry in 1890 and being appointed president of the Reichsbank in 1908. Steeped in the Wilhelmine tradition of devotion to his Kaiser and a passionate believer in the virtue of public duty, he seems to have been liked by all ? a true gentleman of the old school. Montagu Norman - then governor of the BoE - found him to be a “quiet, modest, convincing, and a very attractive man.?" [For more on the treasonous actions undertaken by Norman as head of the BOE in the 1930's click here]
Just how could such a decent, hard-working, intelligent and well-intentioned pubic servant have given birth to the uncontrollable monster of hyperinflation? How could such a paragon of public integrity preside over the largest currency debasement in financial history, quite possibly sowing the seeds for the most destructive war in the history of civilization?
He first seems to have developed the habit of monetizing government debt during WW1. With a complacency arguably similar to today?s policymakers in justifying their variously creative schemes for monetary and fiscal experimentation, the monetary expansion was justified as merely a stop-gap measure. The war was expected to be short and in any case the losers would be made to foot the bill. No one really anticipated the long and protracted conflict which occurred, or the financial burden it would impose. So by the end of the War - only 10% of which was financed by taxes - the money supply had ballooned and prices had quadrupled. Nevertheless, Von Havenstein was lauded as a public hero, decorated with honours and even nicknamed "der Geld Marschall", which sounds a bit like the ?the Maestro? but in fact translates as the ?Money General?.
Once embarked upon this path though, it became difficult to stop, especially since the early stages of inflation didn?t seem too bad. Although inflation rose by 60% in 1921, real industrial production rose by 26% and unemployment stood at only 1% of the unionized workforce. The following chart shows that at one point during this period, real share prices rose by over 100%. But then the inflation intensified. In 1922 it reached 5,300% and on the eve of currency reform in late 1923, the annual rate was 16,579,999%. How did this happen?
To call the political climate of the time merely difficult would be a gross understatement. The country was on the brink of civil war: on the far right was the vast and humiliated ex-military which, having been forcibly demobilized by the victorious Allies, had become a seething and vengeful nationalist militia; on the far left were the anti-war workers and communists, the latter inspired by the 1917 Bolshevik Revolution and aiming to achieve the same end in Germany. Meanwhile, with revolution in the air and violent street battles between these polar political opposites playing out nightly, deep-felt resentment towards the foreign powers was fermented by the issue of war time reparations, whereby Germany was required to hand over 4-7% of GDP each year until full compensation for the war-time devastation had been paid.
It?s worth noting that there has been much debate over the extent to which reparations were in fact a primary cause of the hyperinflation. Some have argued that the 4-7% budgetary burden was bearable and that the hyperinflation was actually a bluff gone wrong. The German authorities were actually trying to demonstrate just how desperate their situation was as a way to lower their reparation payments. I?m no expert, but I?m not completely convinced by this argument. In passing, it?s worth noting that we?re about to see how politically feasible such a budgetary burden is since the 4-7% of GDP range is roughly what Cecchetti et al at the BIS calculate is required to stabilise debt levels at 2007 levels (see chart below).
I personally think the 4-7% reparations was the last straw for the German authorities facing capital flight in response to the tax measures they?d introduced to shore up the government?s budget position (as we?re seeing in Greece today), with the monetization habit now very firmly entrenched and fearful of what might happen should painful deflationist policies be pursued. As Liaquat Ahamed writes in his masterful book on the Great Depression “Were he to refuse to print the money necessary to finance the deficit, he risked causing a sharp rise in interest rates as the government scrambled to borrow from every source. The mass unemployment that would ensue, he believed, would bring on a domestic economic and political crisis, which in Germany’s [then] fragile state might precipitate a real political convulsion.” Facing a dilemma orders of magnitude higher but nevertheless familiar to observers of today?s situation, faced with the terrifying prospect of even more economic pain should he slam on the brakes, he opted to press his foot further on the accelerator.
Another lesson: blaming speculators for economists' endless blunders and flawed outlook on everything, is nothing new. Somehow, CDS traders did not exist the last time countries were going bankrupt: but how is that possible?
Less well known though is that, as always, economic theory was on hand to furnish Von Havenstein with a ?scientific? justification for his playing for time. The consensus in Germany was actually that the cause of inflation was external because both the Reichsmark and import prices had moved disproportionately more than the rise in the money supply. Since the external value was caused by the balance of payments, which was largely caused by the reparations, it was foreigners and not budget deficits which caused the inflation. Indeed, Von Havenstein was so enamoured with this theory that he blocked attempts at monetary reform arguing that any measures would be pointless without settlement of the reparations issue. According to Ludvig von Mises, “Herr Havenstein honestly believed that the continued issue of new notes had nothing to do with the rise of commodity prices, wages and foreign exchanges. This rise he attributed to the machinations of speculators …” Speculators always get the blame don?t they?
But 1922 is so long ago. There is no way out "advanced" economy can in any way compare, is there? Read on:
I don?t want to overplay the parallels. In fact, there is one very clear difference between the hand Von Havenstein had to play then and those today?s central bankers have to play now, namely the stability of today?s political climate. Clearly this can change, but the class warfare, nationalistic xenophobia and revolutionary spirit poisoning the political atmosphere of 1920s Germany is at the very least dormant today, and certainly not meaningfully visible across the political landscape. But let’s not ignore the parallels either: as is the case for today’s central bankers, Von Havenstein was faced with horrible fiscal problems; as is the case for today’s central bankers, the distinction between fiscal and monetary policy had blurred; as is the case for today’s central bankers, the political difficulty of deflating was daunting; and as is the case for today’s QE-enthralled central bankers, apparently respectable economic theory reassured him that he was doing the right thing.
Let's not forget that without much fanfare, the Greeks and Germans are doing all they can to bring xenophobia back to the core.
One might think that the big difference is that today we have a greater expertise. Surely we understand what happens when deficits are financed with printed money, and that it is only backward and corrupt states that don?t know any better, like Bolivia and Zimbabwe? But just a few years ago didn?t we think that it was only backward and corrupt states that suffered banking crises too?
And anyway, how could Von Havenstein not have known that the continued and escalating printing of money to fund government deficits would cause inflation? The United States experience of unrestrained money printing during the Civil War had been well documented, as had the hyperinflation of revolutionary France in the late 18th century. Isn?t it possible that, like today, he was overconfident in his ability to control his creation and in the economic theory which told him such control was possible? Certainly, in an article in the New York Times on the eve of the First World War, again from Liaquat Ahamed?s book, there seems to have been evidence of the general optimism that there would be no "?unlimited issue of paper money and its steady depreciation … since monetary science is better understood at the present time than in those days.?"
The fact is we do understand the economics of inflation. Despite what economists everywhere say about being in ?uncharted territory? with QE, we know that if you keep monetizing deficits eventually you get inflation, and we know that once you'?re on that path it can be extremely difficult to get off it. But we knew that then. The real problem is that inflation is an inherently political variable and that concern over debt sustainability and unfunded welfare obligations leaves us more dependent on politicians than we have been in many decades. Frank Graham concluded his 1930 study of the Weimar hyperinflation with the following observation, which I think is as ominous as it is apt today:
"?The mills of international finance grind slowly but their capacity is great. It is also flexible. The one condition is that the hoppers be not unduly loaded in the effort to get the whole grist from a single grinding. So much for the economics of the question. What politics has in store is, however, an inscrutable mystery. It can only be said that such financial difficulties as may occur will almost certainly arise from political rather than from economic sources.?"
How many more parallels do we need: escalating geopolitical tensions across the world, an Eastern European powder keg, Quantitave Easing masking as just economic doctrine, and, on top of it all, a deranged money printer. Just as von Havenstein set the foundations for the most destructive war in world history, is his modern reincarnation currently doing the same, as yet another, much more destructive military conflict possibly approaches?
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Even many Austrians are continually surprised by the extent to which lying, cheating, and other measures are successfully hidden from the public and blown into a bubble that you call "prosperity". Look around you; do you see anything that resembles a sustainable prosperity?
Care to offer us your prognosis? Or rather just anonymously snipe?
Actually, I do. But while I own a profitable company and apparently have a future, you must not.
However you will summarily attack me and discount my opinion regardless. That is what neo-Austrians do.
Let me guess, there hasn't been any 'advancement' or 'prosperity' since 'the creature from jekyll island' hatched, right?
We just lurch from 'fake prosperity' to 'deserved pain'?
Please. This country is great and will continue to be great, despite your attitude.
i guess you took the blue pill
Need a seeing eye dog? Or you dont get out much? Its a big country, makes it easy to miss those tent cities, plywood over business windows are the new style.
Pardon my bitterness.
Care to offer us your prognosis? Tell us how the federal debt will be resolved. Tell us who will politically lead the successful charge to balance the federal budget. Tell us who your client base is for your successful company, and what their prognosis is. I'd love to hear it.
Maybe you'd like to signup for an account and be....accountable?
Edit: "This country is great and will continue to be great, despite your attitude."
Please define "great".
Paul is an OBgyn and a politician. Not an economist.
Well said. Always enjoy your posts and, more recently, articles. +100
My only problem is with how blatant the lie is. Now of course it seems blatant to me, but I also think that Joe Sixpack might be wising up to. After all now his money is on the table as well. And while I don't expect him to act rationally and do all his homework I do expect some kind of response. After all going from top of the pile 1st world and then slipping down into the unknown is not something that is done without a great deal of social turmoil and upheaval.
Honesty hurts. I have been having a private correspondence with a long term friend of mine and while he sees the problems that are occurring refuses to look at the result. He does not because as he puts it "I can't give up hope. I have to believe that something will change or I'll go crazy". He won't honestly look at what will happen because it will break his worldview. Hate to pull the line here, but to me losing all hope was freedom. In giving up any idea that things would magically get better I could look at the events rationally and ask how they effected me and the world around me.
Every man has his price. Perhaps that is part of the problem. We all have our price and can be bought with money printed out of nothing. Not only does every man have a price but indeed every man cost nothing so long as the briber owns a printing press.
Can we even hope to achieve honesty when lies are so free and easy, and indeed feel so good for a while? I have to also wonder about the natural selection element about it. For it seems to me that mother nature would select for those willing to embrace the pain of truth and plan for the winter that is coming. But I know there are some lines of research that suggest much of our communication ability and brain power is the arms race of being able to lie and then being able to detect falsehoods. The Red Queen strikes again!
" I have been having a private correspondence with a long term friend of mine and while he sees the problems that are occurring refuses to look at the result."
I too have had many conversations with friends regarding the economy and the "state of the Nation". My friends also are in denial and have hope, they look at me with blank stares. I have quit talking about what is coming, most do not want to admit where we are going. I have begun to believe that Americans are going though the stages of grief and loss...
1. Denial
2. Anger
3. Depression
4. Negotiation/Bargaining
5. Acceptance
All Joe/Jane are still in denial. Many on these boards are in Anger/Depression, those still trading are in Bargaining and very few are in Acceptance. I fully expect scenes from Greece to appear soon as extended benefits expire. Most think NIMBY, (not in my back yard), it will be here sooner than you know it.
I can understand their unwillingness to accept it. After all ti is coming to terms with the fact that most of what you know is a lie. That the system we have invested our entirely lives in is nothing more than an elaborate ponzi scheme. They want to believe it's a bad dream and something will come up and save them. Some don't think it will be that bad, my father has told me "I lived through the 70's, I can ride this out", but now he is thinking about what could be happening now that they might be messing with his retirement nest egg.
I cannot say that you should continue talking about it, but I have. If needs be I'm willing to be the guy on the street corner with the sandwich board sign saying "Repent! The end is nigh!", so I'm willing to look like a nut if it will help the people I care about. Now I'll confess I have slowed down my talk to acquaintances, you can't save everyone.
Shameful,
What a wonderfully thoughtful and reasoned post. Interestingly, a fruitless (and long) correspondence I had with a friend over 10 years ago lead me down the path to understanding why we do what we do. There are so many things I would love to talk about here but one in particular jumps out because it's the basis for an article I'm working on down the line.
"Can we even hope to achieve honesty when lies are so free and easy, and indeed feel so good for a while? I have to also wonder about the natural selection element about it. For it seems to me that mother nature would select for those willing to embrace the pain of truth and plan for the winter that is coming. But I know there are some lines of research that suggest much of our communication ability and brain power is the arms race of being able to lie and then being able to detect falsehoods. The Red Queen strikes again!"
I've often thought about this. In an odd sort of way, this idea dovetails nicely with the recent (meaning within the past 200 years of the 8,000 year history of "modern" man) exploitation of crude oil. Not only has all that easily released energy made our lives so much easier (how many humans would be needed to push your vehicle from home to work to home every day or cut wood to heat you home and cook your food etc.) but it has also enabled the lazier and more dishonest mind/person/citizen to flourish with little to no evolutionary consequences, at least up to now. This is something I plan on exploring in the future.
Excellent thoughts. I believe that the infrastructure supporting our current lifestyle has experienced the equivalent nutritional malinvestment after years of allowing ourselves to be "seduced into thinking Utopia is just around the corner". Instead of robust transportation, producing as much as possible locally, and social interaction with family at the dinner table we have allowed fast food (genetic modification house of horrors!) to replace our appreciation for human survival fundamentals.
Save Our Souls
I'm not sure any correspondence is fruitless. Perhaps it's foolish but I would like to believe that when the time comes they will remember what was said and perhaps it will not be to late to help them in some way.
As to the ease of living I agree 100%. I have been saying most of my adult life that living is easy, particularly in America. That a person can easily get access to the basic necessities with what is really a small amount of work as compared to our ancestors. A person can also gain access to things kings would have only dreamed of a symphony at your beck and call, heat on command, cold air on command, all manner of entertainment, exotic foods, even the ability to fly. This has been done on easy energy. However I happen to think that there is still years left of easy energy if we can tap into natural gas and actually build nuke plants. Both things I don't expect, only that such a thing could be possible.
As to the evolutionary effects that is interesting. I'm not so sure it's an evolutionary shift (because of the short time frame) so much as it is a culture shift. Like today I do not see much in the culture that glorifies honesty and hard work. But I do see the "hustler" as glorified, or the gambler (look at the poker explosion). The culture we are presented is telling us that it is better to gamble, hustle, and steal then to work and save. Now I honestly do not know why the culture took this turn. I suspect it was done with influence of those that would profit from it, but I suppose it could be a natural progression as well, I don't know. To me it's this culture that is the most poisons thing to future progress. A nation of gamblers, thieves, and hustlers will not make great innovations that benefit mankind, though they make make amazing financial innovations (MBS). In some ways I feel like a foreigner in my own homeland because I have great difficulty in identify with the culture that is developing.
excellent exchange CD and shameful. I always wonder if all this historically easy living and borrowed / wasted resource has changed the nature of evolution itself, along with its velocity. Perhaps you're right shameful and it's merely a cultural twist but it has imbedded itself pretty deep in the common psych.
Interesting discussion - and I think the pendulum will now swing. We already see "conspicuous consumption" transitioning to "frugality and bargain hunting", and we will similarly see "grifting the system" turn into "look at what I can create".
You already said it: Easy/cheap energy gave us many things without working (very hard). Similarly, the Western World has strong "social safety nets" without being responsible (and which actually encourage irresponsibility), and that gave many people meaningless lives, and their "points" and "satisfaction" came from gaming the system (just like "points" in video games). I don't think many of these people understand how empty their lives are.
I make more than most people in "poverty" in the US, but I don't have air conditioning nor cable TV, nor never have, despite the fact that people in "poverty" in the US live better than me. I chose to (try to) be "responsible" regarding saving for a rainy day. Others will similarly start to understand the value of "things", as well as the value of what one hour of work can bring, now that the social safety net will be gone.
IMHO, this can be a very good thing: If you finally learn in your 30's the satisfaction of going to bed after a hard day's work, in contrast to your decadent trust-fund baby life up until then, then good for you.
[*edit*], that was in reference to the "figurative you" (e.g., a generic individual in society), and not intended to reference anyone specifically in this discussion. ZeroHedge readers in general are in the "awake and aware" crowd, whether or not we agree on any given economic or monetary issue. I agree, and am a bit sad, that hard work and ethics are not lauded as much as you lament and I would like. However, I cannot see how that can do anything but change for the positive.
Aaaannnnddd you got junked. Go figure!!
Probably one of those lazy people junked you.You wrote a well reasoned response.
CD I allways enjoy your responses.
Have a nice moment
CD, your reply and Shameful's posts were some of the best on this thread, the junk votes caused a WTF moment..carry on! Just trolls with nothing better to do.
CD,
I finally had to junk you having read enough of your excellent writing to begin to understand you. First, you'll have to decide what you believe. There is nothing especially wonderful or enlightened about maintaining an mind open to every possible idea. That isn't all that hard to do. In fact, it doesn't require that much intelligence. Having the intellectual capacity to withstand continuous cognitive dissonance is certainly a good thing..........but it's not the most imortant thing.
The most important thing is deciding what you believe. What will you stand on...................die for?
I've had plenty plenty cognitive dissonance in my life trying to decide this question, what do I believe. One trap I avoided: evolution is a lie. Evolution schmevolution. Elitism is a lie. Looking down on Joe Sixpack's attitude toward the current financial crisis/the political situation....is deceiving yourself.. You think Joe Sixpack doesn't know what's going on? Think again. (And listen more carefully to what Joe sixpack is saying).
I believe that there is someone supreme. What goes around comes around God is not mocked. Fiat currency is worthless--those that lie cheat and steal for fiat currency get exactly what they deserve, exactly what fiat is worth; viz., nothing. Ever know a dishonest rich person? They are perfectly miserable.
So, as a young person, how can you avoid such a mistake in your life? Pray to God for wisdom, more precious than silver and gold.
Want me to prove it to you? OK, here is a wonderful performance of the greatest music ever written:
http://www.youtube.com/watch?v=SgHMpYsv0_0&feature=PlayList&p=3B0B3FB8E408DB30&index=9 http://www.youtube.com/watch?v=psyPlT4aZug&NR=1 http://www.youtube.com/watch?v=lfAcl7FIgNg&NR=1 http://www.youtube.com/watch?v=svA5uIsPxJQ&NR=1 http://www.youtube.com/watch?v=cOMt-MiI018&NR=1
After you have listened to this enough to become thoroughly familiar with it, ask yourself how much did this wonderful addition to your life cost you? And remember, it has come to you because of your wise Christian friend who cared to help enough to attempt to guide your thoughts toward God.Thank you for the comment and the junk. I'm honored.
Just because I keep an open mind doesn't mean I don't have opinions or beliefs, just that those opinions and beliefs are constantly open to review and modification. And most importantly, I live my life using and honoring my opinions and beliefs. Among my (financial industry) peers, I'm considered a son of a bitch because I won't go with the flow, won't bend my principals to be "practical" (which usually means profitable) and won't go along to get along. I'm tough on myself and my family. My children have cursed me when they were young but now call me to thank me because I forced them to think and to be responsible. I never beat them for that does not teach (at least the important things needed to grow and learn) but I would not let them play games with me or themselves.
While there have been times where I've worn my emotions on my sleeve in this forum and have dispensed my share of rants and raves, I find it counter productive to do so. The control mechanisms feed on raw emotion, play it like a musical instrument, can only exist when logic and intelligence are abandoned and emotion dominates. My biggest mistakes always occur when I'm being emotional. Luckily I've lived (literally in some cases) to learn from my mistakes.
And this is where I suspect you think I'm looking down at Joe Six Pack, because I talk about Joe in a dispassionate manner, often from a third party point of view. What you might want to consider is that I often use the terms "I" and "we" and "us" when doing so in an effort to dispel that notion. In fact, using those terms has garnered me criticism for being "emotional" and "self indulgent" in my posts and especially my articles. Damned if I do, damned if I don't
And I do believe in a higher power, a supreme being. It's just not in the form nor does it function in the manner you believe. I have deliberately refrained from discussing this aspect of my life because it has no place in this forum, at least not in an open forum with trolls and psyops operatives looking to disparage and destroy. Sorry, I'm not as stupid as I look and I won't expose myself to a situation where all I can do is harm myself. I did plenty of that in my 20's and early 30's to last a life time.
CD,
Really appreciate you posts. I just think you'll get a lot more out of this if you tell us all what you really believe, just let it hang out. Who cares what the psyops or the criticals think? Really.....they may not admit it (and they may act like they don't appreciate it) but they may desperately need to hear what's dear to your heart.
All in good time. Baby steps, it's a process. I'm getting there. Actually the writing of my posts and articles is very therapeutic and helps me, forces me, to pull many different things together in a coherent manner, rather than just having them sort of floating around out there, loosely bound together but in no real order. This is really about me, as selfish as that may sound. If anyone benefits from it, that's great. But I'm not trying to prove anything to anyone.
Cool, go for it.
Also, in the meantime enjoy this:
http://www.youtube.com/watch?v=KhsRSdXE-wQ&feature=PlayList&p=9C8C05F552...
I'll try not to write all non sequiturs because it's more fun to have freinds to correspond with/bounce ideas off of.
You put down evolution, tie it in with elitism, stand up for Joe Sixpack, then you proceed to climb up on your pedestal and preach down to open minded atheists as though we are a bunch of lost children in need of your wisdom. You don't see the hypocrisy here?
Winisk,
Atheists are anything but open-minded. Evolution wouldn't be so bad if the science actually supported it. No, I don't see the hypocrisy. You'll have whatever wisdom you pray to God for, nothing from anything I might write. How did you like the "Rite of Spring?"
Can't dig the rest of it bro, but Rite Of Spring was really good.
Thanks.
Oh god, not an evolution denier. According to the bible gravity doesn't exist either. The most bigoted people tend to be the dualistic abrahamic nuts, marxists/communists and formerly zoroastrians. The dualism inherent in marxism and communism directly descends from the abrahamic teachings of "equality", "fairness" and the spiritual salvation that marxism and communism will manifest itself in.
Ah the good old days when people were hard-working and honest!
I wonder what evolution has to do with dishonesty, laziness and stuff...
Many folks who subscribe to a higher power view evolution in the context of evolving to a higher more sophisticated state of being, with Man at the top of course. That's how big our ego is even though our time on this planet has been brief. Fact is, nature doesn't give a crap about anything. Those who can survive and continue to reproduce will be successful. If dishonesty, cheating, and laziness achieves this, then that behaviour will continue exist. It's a parasitic strategy that works if there is a willing host. Our kindness and humanity does indeed promote this.
+100
Eric Berne reincarnated indeed.
Love the "Dune" reference with your ID. Many memories of long afternoons and evenings immersed in the Arrakis world of Duke Atreides, sand worms, spice and "Freman".
I looked up your "Eric Berne" comment and found a very interesting person. Thank you for the pointer towards what will be an interesting read when Amazon delivers his "Games People Play: The Basic Handbook of Transactional Analysis" book Tuesday. BTW, I love amazon Prime, one annual fee of $75, second day shipping on all new books and some used books. Looks like my Zero Hedge posting might suffer while I consume "Games". Thanks again.
CD you are most welcome.
Its been said by others but I have really enjoyed reading yours and Shameful's posts, especially on this thread.
Being flagged as junk, well that's one of the great things about ZH - minimal suppression of dissenting views. Needless to say I don't agree.
Keep on posting, really appreciate your commentary. As for Eric Berne, well, he can be a challenging read. I recall your comments about ego getting in the way the first time one reads and I can identify with that. It took a while to become comfortable with his take, whilst accepting at the same time that it isn't necessarily "true". One persons truth can be most unacceptable to another and I often see a huge confusion between facts and values. The truth is, erm, a multi-edged sword.
Marla & TD - wonderful website, a real pleasure to read and ongoing education.
Thank you
A whore is the last honest person on the planet.
CD
While I have to agree there is a little larceny in everyone, I wouldn't go much further with the generalizations.
Here at ZH, despite the (slightly) poisonous barbs we throw at each other, we get to open up the lid a little further each day.
But I have to directly disagree with your thread. I believe this time it is different, since a growing portion of the public are watching this fantasy end, and it is ONLY the politicians, the banksters, and government mandarins that are believing their contrivances. And some of them are smelling fear.
While I hope you are correct that the population is beginning to waken (I do see an increasing level of consciousness in the general population) we are not the only ones to recognize this. Thus the growing strength of the police state. This is not happening by accident but by design. The stronger and more independent the population becomes, the tighter and oppressive the police state will become.
Did anyone notice how convenient it was for the underwear bomber to happen upon the scene just as the full body scanners were waiting in the wings to be deployed? Think that was just a coincidence? While we have "hope" and "belief" they have more concrete aspects to draw upon. They have the hill and the weapons. We are just waking up to the fact there is even a battle brewing. They are ready to do anything and everything to win. Are we?
You said "And some of them are smelling fear." I agree. But these are ruthless animals who will stop at nothing. They have demonstrated this time and time again. What do we have to defend ourselves from this? Our only defense is to understand the weapons they have arrayed against us. Those weapons are psychological in nature. They must convince us that resistance is futile or they will quickly be overwhelmed. They are winning to this point.
I will not shut up. I'm asking the hard questions very few want to even consider, let alone ask. I don't have the answers nor do I pretend to. But when facing an enemy who is dug in and has shown they will collapse the economic system in order to control the system, to be anything less than brutally honest with myself and others would be doing a terrible disservice to all.
If we aren't honest with ourselves about what is going on and how we are being controlled, what's going to happen is very simple. We will turn on each other, killing each other in our frustration, convinced by the psyops that we are powerless and have no control. We are engaged in a mind game, warfare of the mind. Unless we recognize this, we will have lost before it ever begins.
"Our only defense is to understand the weapons they have arrayed against us."
and our own that we keep in our closets. Like you said, this is a mind game, the economy is largely our consumption. Collective action (or inaction) is long overdue
Ah conspiracies. Enjoyed the discourse and will have to look up CD's postings on this site. Is this belief in conspiracies (or hidden agendas) a rational conclusion to our irrational reality, i.e. this global economic system is so faq'ed up, it can't be explained away as random happenstance or mere greed?
As someone who has had a ringside seat to Kucinich from his political day one, yes there is more than meets the eye with any politican.
@CD - Have you ever heard of Alan Watt @ cuttingthroughthematrix.com and if so do you have an opinion?
Nope, never heard of him until now. I will look into his site. Thank you.
Inflation yes, hyperinflation no way. Civil society would collapse if a loaf of bread or a gallon of gasoline cost $957. Riots, etc. Cats and dogs living together.
Certainly would make it easy to pay-off all home mortgages... hire new workers, etc.
Has any modern developed country had hyper-inflation, ever?
I cant think of any.
Exactly society would collapse. Now do you trust the man at the wheel to not lead us to that collapse? If you do then have no fear, now if you don't then maybe storing a little extra food might not be a bad idea. After all you'll eat it anyway, and if nothing happens you can laugh at those crazies on the Internet.
great setup that central banks are not part of governments so they are not targets of war, just the masters of them
war and peace are their business cycles
I laugh with the crazies on the internet
The currency crisis results of an inability to stealth monetize enough of the coming debt service and entitlement requirements. Deflation exhaustion will require the magic elixer, followed by miscalculation.
Hyperinflation.....do not wait for it.
Sorry but
Germany didnt have bond market to speak of
The German currency was not the senior currency
Born in 1953, Bernanke is a product of his generation. When someone controls the economic stability of the largest economy the world has ever known and yet is afraid to make justified, unpopular policy decisions due to political influence, greed, lack of intestinal fortitude, pain intolerance, whatever, how can any sane person expect positive long-term economic results?
This whole current political and financial establishment, having grown fat on stupidly low interest rates for the last decade, has done irreparable harm to the World's economy. Now they know it's effectively 'Game Over', and just as the Clintons pillaged the White House, Washington will pillage pensions, 401k's, and what's left of the wealth of the working class. Let's hope they are all remembered for what they were: Invertebrate Pigs
You got my vote Sancho
I kind've don't like the anti-economist tone. There are plenty of economist (or trained in the science, such as I) who are just as pissed off about what's going as everyone here.
We've all known what the long term outcome of massive deficits and inflationary monetary policy would be. We've all voted against politicians who promote those policies.
But unfortunately, people LIKE TO BELIEVE we can have it all NOW. Thus, Wall Street has become a gambling casino because of the promise of never ending profits (stocks go down, but never much....right?), owning a home is a sure thing (real estate NEVER goes down), and free "stuff" is everywhere (health care should be free, as should the ability to buy cars and get energy...or at least as close to free as possible).
The problem is less the economists and more THE PEOPLE. They are, sadly, misled by politicians. These same politicians can trot out political economists who will support their views (Robert Reich - do you hear me?). These economists are called "experts" and thus impart validity. And then we are brought low by their missteps, even as they line their pockets.
Obama is going to walk away as a one term president, but with more cash in his pocket than Bush did. Sadly, after the hyperinflation it won't matter much for either of them.
As of 3:10pm today, this week's market behavior demonstrates B has won... the bears have become a bunch of cowards. The theater will only collapse when a large enough supposed bull blinks.
Do the central bankers believe that this time round it is different? I dont think they do, but there is no plan B. Its as if they are in the control room of a runaway nuclear reactor, they dare not shut it down for fear of the fallout. They have to keep adding more fuel in a desperate attempt to `stabilise it` but they KNOW its a very long shot - and likely to end in melt down anyway.
Surviving Hyperinflation: How does one do it? Gets us back to all the `got guns & ammo?` scenarios which until recently I found over alarmist. Barter? who knows but when it comes those who supposed their goverment would take care of them are in for a nasty awakening. Makes a bit of deflation seem like a attractive option to me, but we sped past that turning at least a decade ago.
You should read The Day the Dollar Dies Series by johngaltfa (who posts here from time to time until he gets yelled at to continue his series). Anyway, its close to how things probably will go. (Over on the Shenandoah blog, I think)
When Bosnia really was in disarray, things went along the lines of barter, German currency and THEN gold or silver. It was actually harder to trade with metals there, but could be done. As a practical matter, cigarettes, alcohol and ammo were easier and quicker to trade.
That would not happen if USD were to hyperinflate ala Zimbabwe. Bosnia civil collapse (and hyperinflation case studies) was but a small piece of the pie where the 'black' market was able to provide what the official economy could not. Where in the US are the cigarettes coming from when the factory is not operating? Bosnia black marketeers had an outside source to import from. US wouldn't. You will see revolution in the US if hyperinflation even thought about starting.
NOt sure I agree with the idea of no imports. Cuba, Honduras. Perhaps even Mexico, and Canada?
+1 - Almost Solvent is not thinking outside the box. "Entrepreneurs" would spring up.
Chinatown, anyone?
I would also recommend his novella. Great stuff. Sad to see it come to a close.
How quickly the veneer of civilization just peels away.
Much quicker than most think it can.
Rodney King riots in LA woke me up to speed which a civil society can break down (and that was when LA had stronger police and fire departments). Continued layoffs of police and firemen will weaken urban areas even more. I envision King like riots in all major urban areas, all at one time, once the benefits are cut off. All most 40 million on food stamps now, can you imagine if they had to line up for soup kitchens?
The master stroke is that we are in a credit society now versus Weimar Germany then. Real inflation can only occur from the increased money supply hitting the populous through fraction-reserve banking. The velocity of money to Main St. is less and less.
Thus, even though the printing presses will be going non-stop for the next few years, I can't see any other outcome than a deflationary depression for average Americans. The rich get richer and the poor get poorer.
I would be interested to hear what other Zero Hedge readers have to say about this. How exactly could hyperinflation start?
Yes. Me too. What is the transition marker? My house is worth less, but gas costs more.
A complete devaluation and repudiation of the dollar on a global level seems to me to be the only potential catalyst. This would lead to a run of all savings (which there is very little of) into hard assets or consumer products.
The transition marker will be the gold price. All the major currencies collapsing vs POG. Already happening,16 but at some point it will accelerate. Gold does well in deflation because it is not in a bank account and therefore not backed by debt. The banking system is insolvent due to derivatives held off balance sheet. To watch for is backwardation on the futures markets which means the beginning of a run on the paper price of gold.
You're all forgetting what happens as real unemployment worsens - and it will worsen, because the continued actions to "fix" it simply make it worse. Tens of millions of pissed off people...
Serious Frak ME warnings: gold decoupling from fiat currencies; Oil Prices over $150 (IMO); USD loses its reserve currency hegemony; foreigners completely stop buying treasuries; USD and stock market dumping simultaneously; other micro factors such as jobs, home prices, supermarket shortages or unusual price increases, and of course the lovely bank holiday.
Godspeed people.
and FYI, some of these things are happening now.
by Patrick the Painter
Obama recently took credit for 50,000 new green jobs created in Denver, Colorado in 2009, even though medical marijuana was no where ever mentioned in the original "Green Jobs" program. With over 400 dispenceries popping up across the city, in the last year, it is being called by many natives as the new "gold rush" to hit the rockies.
Ironically the price of medical grade pain relief is about the price of gold, gram for gram, also making it a good canidate to back a local currenecy. So it was no mystery when Obama told the FEDS to back off the medical marijuana scene in Denver, that 50,000 new jobs were created through the year.
Between the new growers (6 plants per patient), the dispenceries,(400 new office fronts), the advertising in the Westword, the new doctors, and medicine runners and referral services, it has been estimated by the Rand Group that 50,000 new jobs where created in Denver in 2009.
Obama was quick to justify his actions by saying it was no different than whem Clinton/Gore took credit for the invention of the Internet, like they invented that shit or sum shit. "Look, when I was in college, I puffed off a bong or two, so I am no prude when it comes to this topic." I get it, thats its really about getting high in the Mile CIty, through a clever loop hole.
Obama also claims in this jobs climate "you gotta take the frebbies." The unitended "white swans" that show up out of no where, like the 50,000 new jobs creted in Denver as a result of the booming medical marijuana scene. "I really like those cats in Denver," Obama states recently in Yahoo Biz. "They found a clever loop hole, to legalize the dope, and at the same time creating new fees for lawyers like myself and the status quo."
All said, it is estimated by the Rand Group, that this new industry will crete over 500 million dollars over the next 5 years. Enough to to get Colorado own its path to it's own currency backed by the full faith and credit of, you guessed it, the medicine itself! Not sure if your currency stacks up? Roll a joint with it and take a couple puffs and reflect on this passage.
In theory I completely agree with you. But isn't inflation a monetary phenomenon?...Too much money chasing too few goods. If this is the case then inflation could only be stimulated by banks or from outside influences....like the Chinese buying up US assets for example. True?
Certainly the US consumer doesn't have any substantial money to spend that would stimulate inflation.
The 'too few goods' part might be affected by a slowdown of imports from China.
Roy, watch M3 not just M0 and M1. M3 is still only tracked
by Shadowstats, and is more relevant than the M0 to which I
think you are referring to in your statement:
"Real inflation can only occur from the increased money supply hitting the populous through fraction-reserve banking. The velocity of money to Main St. is less and less."
I can agree we will most likely see deflation in the near term as comments above have indicated. But there is most likely only one final destination: inflation since we have neither the political or societal will to massively cut all expenditures and unfunded liabilities and raise taxes to survive complete currency debasement.
Let's also clarify this definition: hyperinflation - is not a bad case of inflation, it is a currency collapse. Hyperinflation is also a psychological event. Credit
de-leveraging is a derivation of hyperinflation. Most
critically, hyperinflation is a loss of confidence in the
currency itself. Be clear, inflation and its Hulk-sized
hellish offspring, hyperinflation, are totally different events.
Finally, read: Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression regarding your question as to how hyperinflation starts. It is a good bookend
to the Weimar Article and should provide a far better
treatise on your question than I have provided.
Warning: Have a stiff drink on hand.
http://www.zerohedge.com/article/shadowstats-john-williams-prepare-hyper...
"Hyperinflation is also a psychological event."
Bingo. And, as such, can occur at a moment's notice.
There is life.
There is death.
And the distance between either one,
is one single breath.
-Kings X
Thanks for your response. Again, however, I find the argument for deflation a lot more realistic than the one for inflation or hyperinflation. However, I must admit I can't properly tell you why. I guess I find it hard to believe that the money seen in M0 through M3 could hit the streets in such a way as to cause hyperinflation....this is especially true in the credit-driven society that we live in.
The big "IF", I guess, is if the debt burden of everyone (including the American gov't) becomes so great that the only way to cleanse the system is to cause hyperinflation. Although possible, this is a very volatile solution for government officials like Bernanke et al. to undertake.
Your instincts are correct IMO - it will be a futile political attempt escape to escape the crushing deflation ahead that will set the stage. Right now they are only experimenting with stealth monetization and bond hijinx, trying to convince themselves they still hold an ace in the hole. Just in case. They will eventually play the card, and find it is The Joker.
"Credit de-leveraging is a derivation of hyperinflation".
O.K., now you've left the domain of simple perception bias and entered (along with many posters here) the realm of total obsession.
Well, Roy
The Stagflation of the 1970's could morph into HyperStagflation. Very large unemployment with persistent large inflation numbers.
Spot shortages is a precursor to hyperinflation.
The end of the "Wealth" effect could continue to depress specific items.
But here's the greatest unknown for me- with virtually the entire G20 borrowing and printing while trying to debase their currencies, to gain an export edge over their competitors, will there be a winner ? And what does winning mean in this context ?
Kayman
P.S. who gave you my high-school grad picture ?
China will revaluate their currency and then you'll see full strenght of inflation
All pigs are created equal, except some pigs are more equal than others...
I don't think the circumstances (economic, political & military) that brought about Germany's hyperinflation and the circumstances in the US at the present time are very similar but here is some interesting information about inflatiion in Germany during the early 1920s. (http://onemansthoughts.wordpress.com/2009/06/07/weimar-republic-hyperinf...)
Timeline of Weimar Republic Hyper-Inflation
1 New Rentenmark = 1 billion Old Reichsmark!
If history repeats one has only to remember what the smart ones did in 1922. They sent their Marks out of the country to the USA, converting them into Dollars. Compute what you'd be worth ten years later for me, it's too difficult to count that high. Of course they lost it all 20 years ler.
global hyperinflation would mean world war of some kind
You can't get hyperinflation while you have 10% unemployment.
lollercoaster
This is not true at all. Weimar Germany had plenty of unemployment. In fact, giving money to striking coal worker in the Ruhr Valley was one of the early catalysts for inflation in Weimar Germany.
Weimar unemployment didn't hit 10% until after Wall Street gave the Germans 90 days to pay back all the loans that fed the hyperinflation in the first place.
In other words massive Unemployment followed Hyperinflation.
It didn't lead it.
I beg to differ.
Unemployment levels have Nothing to do with the Supply of Money.
Zimbabwe has low unemployment?
who knows, it may come when unemployment is @ 20%
Phillips curve is an interesting beast, despite being proven "at least questioned" several times (mostly lately in ex-Soviet Union and Zimbabwe), it's still being used by the economists to say "it's different this time". Well, we'll see whether it's indeed so different.
Tell that to Zimbabwe, dumdum.
Hyperinflation is a function of money supply and faith in the currency. Money supply expands rapidly, meaning more paper chasing the same amount of goods. The rapidly expanding money supply causes people to lose faith in the currency (foreigners first). Diminishing faith increases the velocity, which increases the prices further.
The dollar IS a special case, but it is a much WORSE special case, not a better one. This is because we have been exporting our inflation for the last 50-odd years, and it is likely to come slamming back onto our shores all at once when foreigners lose faith (rather than fairly gradually, as happens in most cases).
So basically, we get market based hyperinflation plus a major devaluation event. Wouldn't want to have my money in cash or bonds when that sudden devaluation hits.
Not that I disagree with what you say but you must realize that the military might of the US would be brought to bear as needed to maintain 'security'. Not that I think that is right, but come on. Absent a revolution, do you think Washington would let a loaf of.bread cost $957 or more?
No way no how
Sounds like government price controls would be needed. Those do wonders for the supply of goods.
So all through Zimbabwe's hyperinflationary experience, unemployment in the nation was less than 10%? Perhaps you should check that out before you make such claims?
Going back to Germany, after WWII with the nation in ruins with a devastated economy and rampant unemployment, but they also had massive inflation. So how was that possible? Sorry, too many examples exist of high unemployment and hyperinflation.
What most analyst do not take into consideration is that hyperinflation occurs in an economy with a productive output in massive decline and an attempt of the ruling authorities printing money in an attempt to revise the said output (real GDP). So you not only have more "money chasing less goods," (the classic definition of price inflation) you have a rapidly declining supply of goods which only exasperates the situation and turns rampant inflation into hyperinflation.
Review Germany 1919-1921
Could have hyperinflation notwithstanding high unemployment:
Reason 1: Unemployed tap into savings/investments. Inflation thus far confined to asset prices/financial markets spills over into goods and services inflation.
Reason 2: Extended unemployment benefits, food stamps, and other entitlement benefits. The helicopter will find a way to deliver the money if there is enough fear / political acquiescence.
Reason 3: Inflation is just as dependent on the money supply as it is on the underlying resource base. Any commodity supply (oil shock a la 1970s) would cause inflation to ripple through the economy regardless of unemployment. Would be reflected in food prices. Even if people do not need to commute to work, they still need to eat.
Guess you haven't vacationed in Zimbabwe lately....
Can you have it at 30%? You'll see it!
These people that write these articles only tell you half the story, what they don't tell you is there is no solution other then collapse when you use the an exponential growth model for their system ie compounding interest.
It doesn't matter if they do something or not it's going to collapse. Humans are no smarter than a virus in a petri dish.
YOU CAN'T BEAT THE EQUATION IT DOESN'T MATTER HOW OR WHAT YOU TRY, THE WAR IS ALWAYS WON BY THE EQUATION.
Hey Mako, #1 fanboy here. Thank you for cutting to the chase. In the end, you cannot beat the math; nothing else matters. All species are doomed to repeat the same mistakes of resource depletion & environmental degradation. Do yeast know their die-off produces champagne?
As a faithfully practicing atheist, it is important to recognize that the Bible is simply the very best historical document possessed by mankind. Dating all the way back to pre-Egypt, it's got it all spelled out covering a span of thousands of years. Seven years feast & famine? Check. Jubilee? Check. Moneychangers thrown out of the temple? Check.
It doesn't matter if we default the debt (deflation) or devalue it to -0- (hyper-inflation). The liability side of the equation has grown so monstrous (compounding principal+interest), that it cannot possibly be supported by income (wealth) even if were able to double productivity. Therefore the asset side must be reset to -0- as the debts are wiped clean.
Who/what is the asset side? Oh, that would be the entire savings of the world squirreled away for retirement, welfare, medical, food, etc. People with savings must be made to understand that their assets are liabilities to others. They are going to -0- since they can no longer be sustained.
does this not leave hard assets as the only store of wealth?
Wealth can mean many things at different times. One second you could have wealth or preceived wealth, the next moment it can be gone. To me wealth is my quality of life, which is subjective.
The system runs on credit, eventually as B9K9 mentioned you can never escape the Math of the equation. I love it when people go, we can never pay back the debt. No kidding, it's impossible to do, the only way to pay off $53Trillion (see Fed's Z1 report) is to produce what? $53Trillion more, then the Z1 report goes to $106Trillion.
The system is either expanding at the rate needed or it starts to collapse, this system started to collapse in 2007. Right now the drown man is just trying to stay above the surface, but unlike a true ocean, in this ocean the waves get bigger exponentially.
See exponential rate chart.
i am agnostic. especially after reading all these bloody posts†
I thought you were just a dumb Blonde?
Get that Gold yet girlfriend???
Egypt survived for 2500 years after the peak of its civilization (and 1000 years after Ramses II). Rome achieved its greatest glories by 100 AD. So it'll probably be a while before the next Dark Age gets our descendants!
God loves you, B9K9. But we love you too.
The bible does not date pre-ancient egypt. It in fact dates to the first millennium BC, almost all of it dates back to at least the Hellenic period. It is a very flawed and contradictory piece of literature. Both the Ancient Egyptians and Mesopotamians had greater and more accurate documentation of historical events. The bible (at least the old testament) was mainly written by Israelites and from the perspective of Israelites to create a myth of them playing a central rule in humanity by being "chosen" by their god.
“There are no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
I beg to differ.
The Unemployment Rate has Nothing to do with the Supply of Money.
"Thus, even though the printing presses will be going non-stop for the next few years, I can't see any other outcome than a deflationary depression for average Americans."
LOL. Because a government controlling a printing press (the Treasury) just loves it when money supply deflation makes their monstrous debt even worse.
Jan 19, 2010 was the administration's high water mark. If health care isn't passed (speaking strictly as an agnostic evaluating the political environment to predict economic outcomes), it really is all over. If this occurs, the momentum will irreversibly shift to fiscal conservatism.
I still believe Americans are somewhat unique, in that enough people are still willing to take the medicine. Once a collective decision is made to face the sh!t storm head-on, we're gonna be faced with a 25%+ deflationary depression.
Comparisons to Weimar and Zimbabwe are ridiculous in the short and medium term. Hyperinflation would only come from a currency collapse.
In Weimar Germany, they had a self reinforcing mechanism that promoted hyper-inflation. Most of the workers were unionized and had contracts that changed their wages (continuously not annually) depending on the inflation rate. As the government printed, it automatically gave workers more wages, and the faster they printed the higher the wages - a self reinforcing loop.
So you have to describe the mechanism to translate government printing into more available money supply to the masses (on bank balance sheets for reserves or in mattresses does nothing if you know about velocity and the money multiplier). One mechanism is the stock market and the other is housing prices (which is why they would like to keep supporting those prices). Wages are dropping, no SS adjustment, assets dropping.
This is why acting on principles is so important - the government like Japan wants inflation/growth but lending is dropping in part due to trust issues between banks and lenders and future expectations (too much uncertainty around CHANGE for capital investment and employee hiring). Crony capitalism starts the ball rolling on moral hazard which can cause a collapse if contracts are not respected along all levels (property rights are the basis of a stable republic - the sole purpose of the law should be to protect property and prevent plunder.)
Structurally we have huge problems with 0 interest rates to savers and all the bailout money given to banks just trickled down to bankers bonuses. The bankers have grown so fat that they are suffocating all industry beneath them and killing the host. They are a utility like water or telecommunications but due to poliltical connections they have been allowed to overtake all industry - the equivalent of a protection racket, a toll bridge operator, or your phone company charging you 2% of your earnings per month to make calls.
Politically, the next round of needed bank bailouts (CRE) will become almost impossible, will be secret, and if needed appear to be for the benefit of consumers (like the HAMP review which will delay banks from having to recognize foreclosures - banks benefit). The balance sheet problems are magnifying with moveyourmoney.com and jingle mail. Bernanke and the economists fail to take social economics into account in their equations. At 0% interest, risk and return are a problem for bank deposits and mattresses and gold (appreciating 15% per year) become more attractive.
With the world's reserve currency we can maintain this for decades just like Japan. Imports might become more expensive, but only against a country with currency backed by hard commodities including gold and oil that doesn't run deficits (how many are out there?).
The US may be the last country standing by the time all of this is over, with the strongest military (and most active ;), strongest athletes (Olympic metals sic), hollywood propaganda, and the reserve currency, it will be seen as a safe haven (USD, TLT) along with gold for international capital flows in the event of a world wide deflation (all the indicators point to deflation today). If we are planning to do more exports, reduce the impact of borrowings, and help out US corporations earnings (likely) then the US also wants to devalue the USD.
Once people figure this out, money will flow have flown from the world into USD and Treasuries and then into the ultimate safe haven - gold. That's why shills like Master Bates post so much on anti-gold, to keep the paper ponzi going. The entire financial system needs a foundation, a base, and that is the USD backed by the world's greatest military known to man and gold.
Let's say hypothetically that we paid OPEC nations in treasuries and gold when requested, and then if an OPEC country stock piled gold and became uncooperative with the US Gov it could be invaded to eliminate "a dictator with WMD or a dictator that supports terrorists" and secure its gold (perhaps giving the country SDRs with the IMF while transporting the gold to a secure country for safe storage) and secure the supply of oil. Think of Treasuries as a form of tribute using our political clout with imports.
Much of finance is an illusion, as you should know by now the paper assets are well in excess of the physical assets due to leverage and derivatives. Food, Shelter, Energy, other Commodities and Precious Metals are real (you can use more than one of your senses to experience them). Be real.
Well. now we know what moniker Karl Denninger uses on this forum.
Nope, Denninger hates gold IIRC, but he does have some interesting stuff on his site.
Denninger posts as 'MarketTruth". He uses the same phraseology, but more importantly, uses caps/bold/italic in the same manner for added emphasis.
Denninger is one of the most outspoken, honest men we have. Thank goodness.
+1!
Sorry, but Karl is a delusional old lady.
One of the best explanations as to why hyperinflation is not on the horizon for USD in the near term. US military might makes right.
I couldn't agree more.
Seems to me that the whole mindset/philosophy that caused this mess is too much abstract thought, and not enough acknowledgement of what is real, in the strictest application of the term (you can use more than one of your senses to experience them).
The term derivative implies a lack of 'realness'.
This time is never different, because people don't change.
A nice big headline grabbing military conflict can't be far away.
Very thoughtful response.
I agree. I had taken his past posts for granted - glad you're "back", Apoc.
Well stated AN. In fact, every post from MAKO on
down is excellent. Peak Oil is the wildcard in all this
No doubt , we would use our military to secure oil,
the next question being the state of the chinese
military. Can they really take out our carrier groups
with an ICBM type device??The Chinese are not dumb
and we have stupidly let them have much of our technology.
I have to assume that they will be prepared for a world wide
energy crisis coming our way soon
Another wildcard is terroist attack in the US with
nuclear weapons (not dirty bombs that our idiotic media
speak of, DB's are useless)
A good friend of mine is a nuclear weapon designer
and he states that its a matter of "when" and not "if"
on a terroist nuclear attack in our cities
Excellent posts, getting near time to cash out those
retirement accounts and converting to gold...
So long as other nations pay tribute to the US, (in the form of long treasuries which will never be repaid except by reissue), the end is not near.
Apocalypse
Well reasoned, plausible
The US may be the last country standing by the time all of this is over,
A win by default.... I guess it's still a win.
I'm not convinced. The last one in a race to the bottom might be the "winner", but what kind of victory is that? King of the dung pile?
Tyler,
I DON'T KNOW. IS HE?
I read this site obsessively, daily, and can't tell you if it is severe deflationary depression or Weimar 2.0 - I am equally convinced of both depending on what bit of brilliance I have just read here.
PLEASE JUST TELL ME SO I CAN SLEEP! (I know you know).
Is Ben Bernanke The Second Coming Of Rudolf von Havenstein?
No. He is the second coming of John Law.
I thought Larry Summers, with his intellectual pretensions, was the reincarnation of John Law.
Bernanke has no "intellectual pretensions"?
>Bernanke has no "intellectual pretensions"?
I don't know. He is a smart guy even though I often disagree with what I understand him to be saying. Unlike Greenspan, BSB often speaks clearly.
Summers is smart, too, but I am unaware of another intelligent senior level govt person (granted a small pool) who thinks so much of himself as Summers. Sure the 'bama thinks a lot of himself (witness accepting a Nobel for showing up) without being all that smart, but Summers takes the cake for pretension.
If BSB plays his part without grabbing a fortune (I know Law lost his) then I'd just put BSB down as a smart guy who tried to do what he thought was correct without knowing that he was being played for a fool and who created mass economic and social devastation.
As you know, John Law was an inveterate gambler and died penniless.
So far, Bernanke has done his gambling strictly with "other people's money" (the whole country's).
That difference I'll recognize.
Don't get misunderstand me. I think Ben is a disaster. I just believe that he is the sort of person who thinks he is doing something good. He thinks he is just telling little white lies that won't matter once everything goes back to the way it was in January 2007. Of course that is not going to happen.
John Law was a professional gambler who was extremely successful because he understood the mathematics of gambling better than anyone else at the time.
His analysis and understanding of the nature of money was hundreds of years ahead of its time, and IMHO only bettered since by E C Riegel.
His proposal in 1705
http://socserv.mcmaster.ca/econ/ugcm/3ll3/law/mon.txt
to create land-backed money for Scotland was brilliant, and contains insights in relation to money which stand the test of time.
He was forced to leave England after killing a man in a duel; rose to be the second most powerful man in France after the King; and created in the Banque Royale the first central bank on modern lines. In so doing he completely revitalised France's devastated economy, until he eventually lost control of the Mississippi Company bubble to which his bank credit creation gave rise.
It's quite possible that without him the US would never have taken its current shspe.
It amazes me that no film of his extraordinary life has been made.
You skipped the good part about his bubble destroying France's economy and that he then slipped out of the country.
I too would like to see a movie about him, but I very much doubt Bernanke, Summers, Timmy or any of the other crooks in charge would be happy to have movie-goers thinking about the disasters caused by monetary authorities.
Bernake was recently quoted at black tie function "there is no way in hell that I would ever measure up to the greatness of Alan Greenspan. I mean come on, the guy left the cash register draw wide open for 30 years, and no one really even noticed!" You have to hand it to the guy, he is a master, a league unto himself."
He hides behind those big bifocals throwing statements at you like "the markets are irrationally excuberent" and "imbalances between saving and non saving nations." I mean, the econo speak will put you to sleep faster than a handful of Ambien. If you are trying to corner Greenspan as a reporter, you would quickly loose interest and forget the point of the interview.
So it was these amazing abilities that put Greenspan into a league of his own and into the hall of federal reserve fame and helped advance the FEDS agenda over the last 20 years. Alan Greenspan, is like Kevin Spacey playing the gimp in the movie "Usual Suspects" and who we find out in the end, turns out to be the mastermind.
Bernake confesses that no one has Greenspan's abilities to put reporters and investigative writers to sleep like Greenspan. It keeps you off our trail until, we do , what we gotta do. Get my drift? And plus, I get put in charge of being the guy to raise rate several notches this year, setting off the 2nd round of foreclosures known better as ARM's. I like to call them, "A arms lenght from bankruptcy, Do Not pass Go, he says laughing over his filet.
"So, Im not going to be Mr. Popular with the American people. Get my drift? Bernake admits he has his work cut for him, but the FED estimates that in the next 4 years, they will own most of the homes in America, and it will be kinda like old feudal times he says with a smirk. It should be really interesting."
OK we had Flanders fields and all that carnage which resulted in huge losses that someone had to pay for - Germany being the loser got the short straw and you had the subsequent hyperinflationary event.
What caused this depression - even though there has been some expeditionary warfare their has been no military expenditure on the scale of the first world war.
Wars are characterised by excessive deficit expenditure of the participants as the spoils of victory are the reward and to be fiscally responsible during a war is to lose and become a slave.
But we had central bankers in the US pursuing a deficit policey for at least 25 years - what were their war aims ? - the Cold War finished 20 years ago.
hey why don't we all send "Fuck you" e-mails to Ben Bernanke, CC: the White House and various MM outlets?
At least the people got some of the money in that example.
I blame the speculators. If everyone would just stop this charade of speculating the true value of a debt obligation and just pay what the issuers wants, then I could finally sell my house at "par". Also, firemen are responsible for fires because every time I see a large fire there are tons of firemen around it.
Less speculations, more indoctrinations!
Nobody breaks it down like Denninger---- Take us out on a Friday, Karl !!-----
Mishkin is on CNBS this morning crowing that "clearly the recession is over."
Uh huh. And your buddies over at the NY Fed, along with The Fed in DC and CONgress, haven't fixed a @#$%&! thing.
Therefore the recession didn't do what recessions are supposed to do - that is, clear out @#$%&! companies and return balance to the economy.
Instead, we've subsidized, we've lied, we've cheated, and we've kept the debt in the system, all of which are disastrous going forward because unlike inventory recessions this has been and is a "balance sheet" recession.
That, by the way, is typical CNBS misdirection too. Words mean things. A "balance sheet recession" is a liars way of saying there is too much debt in the system, not too much inventory.
Of course the fix for a recession caused by too much inventory is to work some of the inventory down.
The fix for a debt recession is to default the excessive debt.
We have done everything in our power at all levels of government to avoid doing exactly that, and it is for this reason that you're going to continue to see the stress levels rise instead of fall, irrespective of the manipulation, until that excessive debt is extracted from the system - one way or another.
Our machinations have hidden an actual, ongoing depression. More than $2 trillion in direct spent support by the government - borrowed beyond tax receipts in the last 18 months, constitutes 14% of annualized GDP. On an annual basis this is about 10%, and a 10% top-to-bottom contraction in GDP is the economist's definition of Depression.
This is math, not pumper @#$%&! games and makes clear what's actually happened. Any person who has lost their job and desperately clawed their head above water on a temporary basis by taking cash advances and using their plastic for a $2 bottle of soda at the local gas station "gets it" - you can play this game for a while, so long as your credit line holds up. You "win" that game if you manage to keep your head above water long enough to find a new job before your debt service requirements exceed your income - even with the new job. You "lose" if your card comes up "Really Declined" before then and are forced into bankruptcy, or if you wind up with so much debt that even finding a new job doesn't allow you to make the payments.
Nations don't quite do things the same way. Instead of "bankruptcy" they are forced into severe austerity measures when they are unable to borrow at attractive rates in the marketplace. If nations go too far down the hole and are unable to implement those measures the political system fails by either peaceful means (elections that sweep out the old ruling class and in a new one) or violent (mass civil unrest, revolt or war.)
So far that has not happened. But the machinations of The Fed have been met lockstep by Congress, which has absorbed and subsumed every penny of credit that The Fed has extended, neutering the ability of The Fed to stimulate the economy, and instead of stimulating the economy with its programs Congress has instead propped up failed businesses, effectively burning the money instead of putting it to work.
AIG is symptomatic of the fraud-laced financial disease in our nation - a disease that will soon enough consume us if we don't excise it from our economy.
The parallels to Weimar, though instructive, are somewhat overdrawn.Though Germany was mostly left unscathed by the physical destruction of the Great War, the political toll was tremendous. the abdication and exile of the Kaiser and Ludendorff followed by the onerous reparations, the ensuing social chaos, the threat of civil war in the end brought about the only possible outcome, the Freicorps supression of the Spartacist revolt and the inevitable re-consolidation of military power.There is nothing even remotely similar in the US.
The crippling and unsustainable reparations payments coupled with extreme and excessive domestic taxation had to contribute hugely to the decline and collapse of industrial production as was intended. The victors were as relentless in peace as they had been in war. Economic means were employed to bring the war home to the vanquished. As has been the case in so many other wars of attrition the debasement of the currency was the final implement employed in the subjugation and enslavement of a population.
Only here in the effective results lie the similarities: Massive foreign debt financing military. Capital flight. Loss of productive capacity due to massive de-industrialization. Large unemployment. Incremental inflationary loss of purchasing power. Collapse of ordinary means of $ exchange. Anarchy and social chaos. Consolidation of military domestically to save the Republic. Our Hitler.
I have lived through hyper-inflation guys. Twice if you can believe it.(Romania and Russia) In both countries there was a deflationary period prior to hyper-inflation. Very interesting. And BTW, even there people were talking about the velocity of money, blah, blah,...and how deflation was going to get worse, the prices of everything would go down, etc. I was young so I didn't lose much. But for those who had saved all their lives, that was nothing short of total disaster. Just be prepared. It is worth losing 20-30% of the value of your PM(and pray for that to happen) than to get cought in that inferno. Good luck!
The period between the two world wars saw banking processes in Germany that developed fundamentals that appear to be eventually used for the establishment of fiat banking in the United States. To override restrictions in the Versailles Treaty, Germany would need extensive financing to build the airplanes and tanks for its eventual military programs in much the same way that America’s central bank would finance its future wars.
"While Paul Warburg was making America safer for financiers (the Federal Reserve System)," writes John Weir in a review of Ron Chernow’s 820-page, The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family, "his older brother, Max, was busy in Hamburg helping finance construction of Germany's new merchant fleet through the HAPAG company. Because the Warburg family fortune was built on financing international trade, Max Warburg naturally sought to encourage the growth of such trade. For the same reasons, international bankers encouraged the removal of tariffs and other trade barriers…"
Max Warburg, head of the German Secret Service in WWI, headquartered the family banking house in Hamburg.
Writes Weir: "When Hitler came to power in January 1933, Max Warburg was Germany's most prominent Jewish banker (who had represented Germany in 1918 at the Paris Peace Conference that negotiated the Treaty of Versailles). He headed Germany’s most important private banking firm, and was a member of the ‘general council’ of the nation's central bank. In March 1933 he approved Hitler's decision to name Dr. Hjalmar Schacht as president of the Reichsbank. The document naming Schacht to this post is signed by Chancellor Hitler and President von Hindenburg as well as the eight members of the Reichsbank ‘general council,’ including Mendelssohn, Wassermann and Warburg…
In 1936… (three years after Hitler took power), the M. M. Warburg bank in Hamburg was still profitable. Among other lucrative connections, it was still disbursing interest payments to bondholders for the giant Friedrich Krupp company of Essen. As Siegmund Warburg wrote in July 1936: 'M. M. W. and Co. are still remarkably untouched by the Nazi situation and the business is doing well.' Even in 1938, notes Chernow, the Warburg bank was turning a profit."
In 1938, Hitler occupied Austria; in 1939, Max Warburg set sail for New York, funds intact
http://www.ihr.org/jhr/v15/v15n5p33_Weir.html
Sound research. Paul Warburg, OB- Original Bankster
Heinrich Brüning
Reichsmark
http://en.wikipedia.org/wiki/German_Reichsmark
bernanke is the second coming of a wart hog....
To call the political climate of the time merely difficult would be a gross understatement. The country was on the brink of civil war: on the far right was the vast and humiliated ex-military (GOP, TEA PARTY) which, having been forcibly demobilized by the IRAQ AND AFGAN WARS, had become a seething and vengeful nationalist militia; on the far left were the anti-war workers and communists (DEM), the latter inspired by the EUROPEAN AND CANADIAN GOVERNMENT STYLES. Meanwhile, with revolution in the air and violent street battles between these polar political opposites playing out nightly.....
Not that far off...
Hmm, inflation is a concern. But, not until after the Depression is over, which is just in the early stages, and will last a very long time. I also see no recovery happening, now or in the future. I would be more concerned about a complete collapse of the US, and civil unrest. Despite China, the US, will be a very different country in a few years, it already is now. But, this change that is happening, now, didn't start yesterday, it started years ago. It's all coming to an end.
What are many folks on this blog 'on'? Answer: home internet paranoia...they come home from day jobs [which contribute more than you average t-shirt maker] and then blog as if the world will end tomorrow. A reality check please. Push your paranoia aside for a second, realise about the state subisidised bubble culture we live in, accept it's comfort blanket for now...and then plan not for tomorrow, but it's the next 50+ years when troubles really begin. No worries for now...it's the future and our boys and girls who need to lead the world and their children with a sensible head instead of this immature wailing shown here....however, the time it is in our hands and we can make the world a better place...if only all you guys weren't looking out for number 1 [so hard done by relatively?] Think about how relative you are to someone living as a slumdog etc] compared to our friend the t-shirt maker. Together, just may be we'll find the solution so take your deep breathes now, push your religion and state affiliations aside [whether Iragi or US] and embrace brother man!! Without that, we are nothing!...BELIVE THAT, WITHOUT YOUR NEIGHBOUR YOU ARE NOTHING...
the parlett
WWII was caused by Wilson. There was no other creator. He created the expectation after WWI that there would be no more wars and that the settlement would be just.
Neither would prove to be true. It was the lack of justice that created the hyperinflation. Germany was being forced to pay its debts in gold, and simply gave up on this farce. Germany was being blamed for WWI unjustly, since the war was conceived of by France to restore Alsace Lorraine to France. France also created the Olympics under Baron De Coubertain to prepare the weak French manhood for physical culture and war to regain Strasbourg and Metz.
It was the injustice of the settlement that became Hitler's drumbeat. Many forgot the hyperinflation, except for the fact that it was created by Versailles, not the German banking system.
Bankers and financiers like to fancy themselves as brokers off war, but they are merely water carriers. Real wars are fought for territory and women. Who the heck wants a stupid banker?
is that true?
Look it up. Modern Olympics. They had not been held since before Christ in the Hellenistic period. The modern Olympics almost in no way resembled the old ones.
Everyone ran around in the buff in the Greek Olympics. Besides, they were to suspend all wars to have the Olympics. In the modern era, Olympics were always suspended in war.
Here is the quote, oft repeated in the internet:
"Coubertin is now known as le Rénovateur. Coubertin was a French aristocrat born on January 1, 1863. He was only seven years old when France was overrun by the Germans during the Franco-Prussian War of 1870. Some believe that Coubertin attributed the defeat of France not to its military skills but rather to the French soldiers' lack of vigor.* After examining the education of the German, British, and American children, Coubertin decided that it was exercise, more specifically sports, that made a well-rounded and vigorous person."
i really like that story. has meaning. greed and politics just twists everything and than it goes to hell. thanks. interesting some sense of evolution has happened in modern olympics because females are permitted to partake, except for ski jumping. i am going to do some more reading, enchanted. remember when pres. carter tried to pull off some suspending bs participation in the LA 1980.
lack of vigor, maybe happens in the vineyards.