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Gonzalo Lira vs Rick Ackerman: "Slicing Up" The Logic Behind The No-Hyperinflation Argument

Tyler Durden's picture




 

Submitted by Gonzalo Lira

Talk About A Big Gap In Logic!—Slicing Up Rick Ackerman

So Rick Ackerman posted a piece that I spotted on Zero Hedge—which surprised the hell out of me. Either Tyler and his gang of merry pranksters are losing their nerve about the downward trajectory they think the U.S. economy and monetary policy is headed in—or they ran the piece for shits and giggles.

Ackerman’s piece said, in effect, that dollar hyperinflation was
impossible. His post was titled “Big Gap in Logic Weakens Hyperinflation
Argument”.

I’ve got a rep for being a hyperinflationist—which isn’t exactly true:
I’m a dollar hyperinflationist, but a euro deflationist. A friend called
me an economic agnostic, which is pretty accurate (and kinda cool,
actually): I look at the data, look at the political realities
influencing macro-economics, look at the arguments, then make up my
mind, regardless of what the various sects of the religion known as
Economics deem orthodox.

I suppose my heterodoxy comes from my education: I was trained in
philosophy, with emphasis in epistemology (theories of knowledge),
Hegel’s political philosophy, and formal logic. That background makes
you not want to join a crowd—any crowd. And it makes you willing to
question even your most prized assumptions.

So when Ackerman said he had proof positive that hyperinflation in
America was impossible—that he had, as he claimed, found a “big gap in
logic”—I was like, “Cool: Show me.”

So Ackerman . . . well, he tries. In his piece, he writes:

Hyperinflation occurs when people,
fearing their money is about to become worthless, panic out of currency
and into physical goods. This is highly unlikely to happen in the U.S.
for several reasons, to wit: 1) Whereas Germany’s hyperinflation took
several years to ramp up, today’s financial markets are primed for a
catastrophic collapse that could conceivably run its course in a week,
if not mere hours; 2) under the circumstances, there would be no
shifting of financial assets into hard goods simply because any
financial assets one holds at the time of the collapse would become
worthless before one could sell them; and, 3) at that point, there would
be insufficient currency available to drive a hyperinflation, since
mattress money is likely to be scarce and because branch banks keep only
about $25,000-$50,000 in cash on hand. All of which implies we will go
straight to deflation without the emancipating, hyperinflationary
interlude that some mortgage debtors might be hoping for. 

Then Ackerman adds:

My argument is simple, and I will not yield ground to any
hyperinflationist who fails to explain, if the system collapses, where
the money will come from to bid tangible assets skyward. 

For
situations like this, never use a hatchet to chop somebody down—always
use a long, fine, sharp knife. After all, you don’t gut a fish with a
hatchet—you have to slice it up thin as a ribbon. And for that, you need
a long, fine, sharp knife . . .

To begin: Ackerman’s argument in the above paragraph looks like a valid argument—only it’s just not sound.

Sorry to get all philosophy geek-speak—let me quickly explain: The
classic deductive argument “All men are mortal, Socrates was a man,
therefore Socrates was mortal” is both a valid argument (in that the premises follow one another to the conclusion) and a sound argument (in that each of the premises is true, and therefore the conclusion is true).

But the argument “All toilets are television sets, all television sets
make you stupid, therefore using the toilet makes you stupid” is an
example of a valid argument that is unsound: The two premises lead to
the conclusion, even though all the statements are false. (FYI: An
unsound argument can arrive at a true conclusion. For instance, “All
parrots are a type of beaver, all beavers have wings, therefore all
parrots have wings.” Such an argument—though it arrives at a true
conclusion—is an unsound argument, and therefore fails.)

Ackerman’s “argument” is completely unsound: Once you begin to unpack it, it’s really quite obvious.

His very first sentence which he uses to set up his
argument—“Hyperinflation occurs when people, fearing their money is
about to become worthless, panic out of currency and into physical
goods.”—is actually more or less correct—but only insofar as the end
stages of hyperinflation are concerned. And this fleeing from the
currency is not the cause of hyperinflation—it’s merely an
effect, when the population as a whole has realized that the jig is up,
with regards the currency. 

The cause of hyperinflation is always the same:
Spiralling prices that cannot be reigned in with traditional monetary
policies of interest rate hikes. But Ackerman doesn’t see this: In his
piece, it’s clear he doesn’t realize hyperinflation is an effect of rising prices. Eventually people
realize the money itself is to blame—but only eventually, at the end.
That’s why Ackerman’s first sentence sort-of makes sense, but not
really.

But although Ackerman is partly right in the first sentence, his second
sentence? That it’s “highly unlikely that this will happen in the United
States”?

Brother, a panic in the dollar that leads people to exit it for
commodities has happened already—and not that long ago: In 1979-’80,
when inflation crossed the double digits but before Volcker slammed the
brakes via interest rate hikes, people were beginning to get out of the
dollar and into anything else, especially commodities, especially gold
and silver.

But be that as it may, Ackerman goes on with his “argument” and puts up
his first premise: “1) Whereas Germany’s hyperinflation took several
years to ramp up, today’s financial markets are primed for a
catastrophic collapse that could conceivably run its course in a week,
if not mere hours.”

The reference to Germany is of course the Weimar Republic. Ackerman has a
handy list included with his piece, showing the price of gold in German
marks from January 1919 to November 1923. Let me reproduce his list: 

Right away, his own chart betrays him: The charts that he cites says
that gold went from 170 marks per ounce in January 1919 to 499 marks in
September 1919—that’s a trebling of its price, a 200% rise in nine
months. Repeat after me: Triple in price in nine months. Then by
January 1920—a mere three months later—the price of gold had trebled yet
again. Weimar was able to hold off more hyper-i during 1920—call it a
pause in the moonshot—but by 1921 it was off to the ionosphere: Gone,
baby, gone.

“Several years”? By Ackerman’s own data, Weimar Germany’s slide into hyperinflation started the second the Great War ended.

(By the way, deflationistas always point solely to Weimar Germany, as if
it were the only country to have ever experienced hyperinflation. Or
rather, as if the Weimar experience is the only way by which
hyperinflation can happen. Very irritating. That’s like saying that
there is exactly one and only one route from Los Angeles to New York, a route that necessarily passes through Miami—patently untrue. But I digress.)

In Ackerman’s first “premise”, the Weimar reference is actually a
subordinate clause to the whopper he springs on us, the poor reader:
“[T]oday’s financial markets are primed for a catastrophic collapse that
could conceivably run its course in a week, if not mere hours.”

Who says this? How is this very wild conjecture—nay, this very wild guess—suddenly a statement of fact? Last I checked, in the Global Financial Crisis of 2008—the last real market panic—the fall took about six to eight weeks: And that was a full-on, the-world-is-ending—save-yourselves-now!
panic with a capital-P—a panic to put hair on your chest, especially as
that particular panic was outfitted with all the latest technological
trimmings of high-speed trading and various computer accesories. And it
still took about six weeks, from peak to trough (depending, of course,
on where you set the interim peak).

Ackerman boldly—and without a shred of proof or even a modicum of
evidence—claims that the “financial markets are primed for a
catastrophic collapse!” Okay, there was no exclamation mark in his
original piece—but there might as well been one. Such an inflamatory
premise begs at least some proof—some reasonable argumentation.

Alas, there is none. And since Ackerman’s entire argument rests on this particular . . . creative outburst if you will, then the rest of his argument pretty much goes out the window right here and now.

Even if we grant that Ackerman is somehow right about this baseless,
brazen claim, we have to ask the obvious: How is a market crash relevant
to hyperinflation? What—if stocks fall you can’t have hyperinflation,
or vice-versa? Because that is simply, empirically not true: I can point
to three separate cases of hyperinflation—Chile in ’73, Brazil in the
’90’s, Argentina in 2001—where the stock markets all collapsed, even as
hyperinflation was rampant. Ditto with real estate—here I explained how housing prices can collapse even in the midst of high- or hyperinflation.

That pretty much gives lie to Ackerman’s seemingly formidable paper-tiger premise one.

So let’s go on to his second premise—to quote: “2) under the
circumstances, there would be no shifting of financial assets into hard
goods simply because any financial assets one holds at the time of the
collapse would become worthless before one could sell them.”

Ackerman is supposed to be a trader—or at least someone who teaches
people how to trade. (Those who can’t do . . .) Anyway, as any trader
knows, no asset—be it stocks or bonds—suddenly has a valuation of zero.
It might well trade all the way down to zero—but it takes time, because
even if an asset is suddenly discounted by, say, 20%—rather, especially
when an asset is suddenly discounted by a big double-digit chunk—there
are always buyers who think that this drastic fall is a momentary panic,
and that the asset will rebound.

Great traders have met their ruin, chasing a market to the bottom.

By the way, practical experience shows that what Ackerman is positing
simply isn’t true: Even when a specific stock collapses—say because a
teetering company didn’t get FDA approval for some crucial drug, or
because a seemingly solid company was discovered grossly cooking its
books—there are always traders willing to take on the asset, even as it
slides all the way to zero. And that slide is never instantaneous—it
always takes time.

So premise 2? Fuhgedaboudit!

Finally, Ackerman hits us with this whopper: “3) at that point, there
would be insufficient currency available to drive a hyperinflation,
since mattress money is likely to be scarce and because branch banks
keep only about $25,000-$50,000 in cash on hand.”

My knife-hand is dithering: Where to begin to slice! Where to begin to slice! 

First off, to dispute an obvious error of fact: As anyone with even a
passing knowledge about commercial banking knows, most branches carry
$200K to $1 million in cash—and that’s the small branches. For crying
out loud, the lobby ATM carries a hundred G’s, easy.

Second, the amount of currency in circulation is not the issue, in a
hyperinflationary crisis: It’s how hot that cash becomes to its holders.

Thirdly—and most importantly—hyperinflation is a pricing issue: Prices are rising
in hyperinflation (obviously), so buyers have to find the cash to buy
what they need. If food for your family goes up from $1,000 a month to
$5,000 a month, by golly you’ll find the money somewhere—and if you have
to sell your $20,000 Harley Davidson for a paltry $2,000 in order to
get cash to buy groceries? Well, you’ll do it, of course: You can’t eat a
Harley, but you sure can starve to death.

Ackerman’s premise 3? Unsound.

So to recapitulate: Ackerman’s argument is: 1) There’s going to be a
sudden collapse of all financial markets, all of them happening
simultaneously and instantaneously. 2) The collapse will be so sudden
and complete that no one will have time to exit financial assets and
find safe haven in commodities or other hard assets. 3) There simply
won’t be enough money to make hyperinflation possible, because banks
don’t have that much cash.

Strictly speaking, of course, this isn’t an argument: This is just a
series of premises without a conclusion. The conclusion Ackerman does
posit in his post, as I quote above—“[W]e will go straight to deflation
without the emancipating, hyperinflationary interlude that some
mortgage debtors might be hoping for”—does not at all follow from these three premises: First of all, these three premises don’t argue for deflation—they just argue against hyperinflation. So the first part of his conclusion is invalid from the premises he presents.

And even if we allow for the weaker, implicit conclusion that Ackerman
is positing—“There will never be hyperinflation in America”—it’s not at
all clear that that follows from these three premises he presents.

Besides, these three premises are all incorrect, as I think I’ve shown.

Notice, by the way, that Ackerman doesn’t present an argument for
deflation: He just claims at the last minute, “No
hyperinflation—therefore deflation!” But that’s no argument—that’s
simply a false dichotomy that is demonstrably untrue. After all, you can
have an economy where there is neither deflation nor
hyperinflation—obviously. But Ackerman seems to think that “proving”
hyperinflation can’t happen is the very same thing as proving deflation will happen—which is of course nonsense.

I had the privilege and pleasure of arguing with Nicole “Stoneleigh” Foss about deflation. I didn’t agree with her, but at least she had an argument for her position. But Ackerman has none—and really doesn’t have an argument against hyperinflation either, as I think I’ve shown.

Ah, but Ackerman does throw down a gauntlet at the end of his
piece. He wrote, as I quoted above: “My argument is simple, and I will
not yield ground to any hyperinflationist who fails to explain, if the
system collapses, where the money will come from to bid tangible assets
skyward.”

Apart from the obvious fact that he presented no sound argument against hyperinflation—or even a valid argument—the
answer to his “challenge” is simple: The money will come from the
Federal Reserve by way of the Federal government.

In fact, the money is coming right now from the Federal Reserve to the wider economy, by way of the Federal government’s spending.

As I have shown elsewhere—and this isn’t controversial or anything
anyone seriously debates—the Fed is monetizing roughly 50% of the
Federal government’s FY 2011 deficit by way of QE-lite and QE-2. That’s roughly $100 billion a month that the Fed provides, $75 billion of which it is printing out of thin air.

The Federal government needs this money printing—as I’ve said
repeatedly, Washington is a junkie, and the Fed is its friendly
neighborhood dealer. Washington can’t afford to go off the horse—the
Federal government would go broke if it did. Broke as in bankrupt—broke as in full government shut-down. Broke as in no more money to pay for entitlements, the military, or regular government services.

Broke as in broke.

Think it through: If the Fed suddenly cut off it’s $100 billion monthly
purchases of Treasuries, where would the Federal government get its
funding? From China? They’re selling Treasuries and getting into
commodities. From Japan? They’ve got Fukushima to deal with. From
Europe? They’ve got Portugal on deck, Spain and Italy warming up.

There’s no one to buy the massive amounts of Treasuries the Federal
government needs to sell in order to fund its deficit. The Federal
Reserve is the Treasury Department’s buyer of last resort. Scratch
that—buyer of only resort.

That’s why QE-2 will never end, come June when it’s supposed to
end—it’ll just keep on going: The Bernank and the Fools at the Fed will
just keep on printing money, month after month, propping up a literally
bankrupt government, because they have no other choice.

This bankrupt government, of course, will spend this money—it’ll get
this paper from the Fed, and then go pump it out into the wider economy:
And this is how the Federal government will be helping to raise prices
across the whole economy. That $800 billion that the Fed is printing out
of thin air, and then ramming up the economy? That $800 billion of new
money—which is close to 6% of total GDP? That is what is bidding up stuff.

That is where the money is coming from right now. And that is how prices will rise—are rising right now.

And that is how I answer Ackerman’s “argument”, and his challenge: That is how we will get hyperinflation.

If you’re interested, you can check out my recorded presentation, “Hyperinflation in America”, where I discuss the specifics of how I think the dollar will crash. 

My!, but that was a delightful meal! Been a while since I had fish.

 

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Tue, 04/05/2011 - 14:57 | 1138087 Jonas Parker
Jonas Parker's picture

+1

Tue, 04/05/2011 - 14:32 | 1137983 Waterman Jim
Waterman Jim's picture

panic buying must also be accompanied by panic selling.

 

is that not logical?

Tue, 04/05/2011 - 18:45 | 1138928 goldsaver
goldsaver's picture

To a certain degree. But not necessarily as you might think. If I am a hardware store owner and there is a hurricane coming, my customers will panic buy supplies needed to head the storm. Plywood, nails, generators will fly off my shelves. Barring government intervention I will raise my prices as fast as the buyers are willing to part with their fiat. This is good for me as the store owner, because I know I can replace the sales loses during the hurricane and replace inventory at almost normal prices after the storm. But, if I am afraid I can no longer replace the inventory at a reasonable price (as an example, a particular product is discontinued or production severely curtailed), I will refuse to sell the product until a reasonable (to me) price is offered.

No lets look at a currency collapse event. I am a grocer and I am terrified that rapidly rising commodity prices will make it impossible to replace my inventory at a profit compared with my current inventory. Lets say coffee goes to $30 a pound wholesale. Would I sell my current inventory of $6.00 a pound coffee for $9.00? Hell no! I will demand $40 a pound knowing that the replacement price, plus operating costs will leave me with a very thin profit as soon as I try to replace my coffee. Now, lets add velocity. 1,000 grocery stores buy coffee from a wholesaler/importer. This importer has to raise his prices as fast as the market will bear. So, as the grocer, I order 1,000 pounds of coffee today at $30 to replace my inventory. When the coffee is gone from my shelves I see the wholesale price is now $40. Logically, I order 2,000 Lbs of coffee in order to hedge the future price increase. This drives the retail price higher as other grocers are quickly depleting the wholesaler's warehouse and he cant accelerate the coffee supplies from his South American sources. Soon, coffee can not be had at any price and the demand is driven to the black market and other secondary markets. There you find $100 a pound coffee.

Ok, so coffee is not really a necessity (the hell it ain't!). So lets say oil. Same principles. Now, you have to get to work, or run your generator, or heat your home. How much value would your iCrap now have to you? Would you sell it for a gallon of heating fuel? Hell, you would burn $2,000 dinning room set in your fire place to stay warm. 

So in a round about way, yes there is panic selling, but is based on needs and expectation of further currency failure.

Wed, 04/06/2011 - 03:55 | 1139972 ATG
ATG's picture

as in Japan supply chain

Tue, 04/05/2011 - 14:32 | 1137984 trollin4sukrz
trollin4sukrz's picture

Ok it is Tuesday, new post for ZHer's every Tuesday for your weekly futuristic doom and gloom. Enjoy

http://tshtf.blogspot.com/

Tue, 04/05/2011 - 14:34 | 1137987 Rikki-Tikki-Tavi
Rikki-Tikki-Tavi's picture

While I by no means find UST attractive I appreciate that the bearded mad man has made them so on purpose (to provoke more risk taking and kick the can down the road) and I still believe that unless we end up in total chaos a few simple changes could make them relative attractive again. For example, how about: 1) stop QE, 2) introduce 110% tax on all gains from equities and commodities 3) make any gain from UST tax free? Another way would be to force banks (or pension plans) to hold a large fraction of their capital in UST, this can easily be accomplished using regulation (and likely will happen - note to self: stay clear of bank shares) - and I am sure there are many other ways. I can obviously not guarantee that it will be particular good for the economy (like BEnron's programs) but clearly there are methods to create buyers of UST.

Tue, 04/05/2011 - 14:33 | 1137991 Flakmeister
Flakmeister's picture

I repeat, no hyperinflation until the US Military is rendered ineffective.

 

Tue, 04/05/2011 - 14:34 | 1137997 trollin4sukrz
trollin4sukrz's picture

Tuesday is the only day they let me out of the asylum to post on the library computer. Hope you dont mind the ravings of the mad. please bear with me.

jeff

 

http://tshtf.blogspot.com/

Tue, 04/05/2011 - 14:37 | 1138003 topcallingtroll
topcallingtroll's picture

If i were a hyperinflationista i might have second thoughts too, but the fed and banking cartel are not stupid. If it comes to accepting hyperinflation or undergoing major surgery the bankers will perform the equivalent of amputating all the limbs and ripping out the eyeballs to save the fiat patient.

After all, without unbacked fiat bankers lose their power and influence. The bankers would let the economy crater and half the population starve to death before allowing fiat repudiation to happen.

Bankers know you can shear a sheep twice a year but only kill it once.

Wed, 04/06/2011 - 03:58 | 1139975 ATG
ATG's picture

Bingo

Tue, 04/05/2011 - 14:39 | 1138015 Waterman Jim
Waterman Jim's picture

Inflation is the pipe dream of the indebted.

 

 

Tue, 04/05/2011 - 15:14 | 1138172 akak
akak's picture

It is also the cold and heartless lesson of fiat monetary history.

Wed, 04/06/2011 - 04:04 | 1139980 ATG
ATG's picture

Apparently few read Rick's essay

Exactly why would bank owners with financial assets far in excess of the gold supply by 100 to one flush their assets down the drain with hyperinflation?

Their game is inflate and deflate, lend and foreclose

as Franklin, Jackson, Jefferson, Kennedy, Lincoln et al knew before opposing the US Central Bank... 

Wed, 04/06/2011 - 13:51 | 1141863 akak
akak's picture

Exactly why would bank owners with financial assets far in excess of the gold supply by 100 to one flush their assets down the drain with hyperinflation?

I suggest you go ask the central bankers of Zimbabwe, and Russia, and Yugoslavia, and Argentina, and Mexico, and Zaire, and Nigeria, and Peru, and Brazil, and Zambia, and Poland, and Ukraine, and Chile, and Ecuador, and Colombia, and Venezuela, and Weimar Germany, and post-WWI Italy, and post-WWII France, and Mozambique, and Angola, and Burma, and Ethiopia, and Uruguay, and Paraguay, and El Salvador, and Nicaragua, and Turkey, and Lebanon, and Ghana, and .......

Wed, 04/06/2011 - 04:00 | 1139977 ATG
ATG's picture

Double Bingo

Tue, 04/05/2011 - 14:40 | 1138016 bbaez
bbaez's picture

Whether you agree with him or not you have to admit that this does lead to QE N :

Think it through: If the Fed suddenly cut off it’s $100 billion monthly purchases of Treasuries, where would the Federal government get its funding? From China? They’re selling Treasuries and getting into commodities. From Japan? They’ve got Fukushima to deal with. From Europe? They’ve got Portugal on deck, Spain and Italy warming up.

Lira is in Latin America where there is a history of Hyper Inflation - just the name Lira (currency) points to familiarity

I have said it all along we should have GONE LONG on Green Ink, Cotton Paper & Printing Presses

Tue, 04/05/2011 - 14:40 | 1138019 Professor Hindsight
Professor Hindsight's picture

Clearly we are in the midst of inflation and all prices of stock indexes, pms, oil, and other commodities will rise further.

Just BTFD and it will turn out just fine. I promise.

Tue, 04/05/2011 - 14:48 | 1138044 Waterman Jim
Waterman Jim's picture

how do you know?

you can only see in the past.

Tue, 04/05/2011 - 14:43 | 1138030 Stonehedge
Stonehedge's picture

Don't see how hyper-inflation happens without the fall of the world's reserve currency regime. Americans are struggling below $4 gas. Where is the cash going to come from for $10? The largess of Walmart, KFC, and the State of Wisconsin?

 

TPTB won't put up with this and insist on Paul Volcker Jr. after the 2012 election.

Wed, 04/06/2011 - 04:04 | 1139981 ATG
ATG's picture

Triple Bingo

Tue, 04/05/2011 - 14:46 | 1138041 apberusdisvet
apberusdisvet's picture

Just an anecdotal comment on bank cash re Lira's statement.  I went to a Wachovia branch bank last year to withdraw $30K in cash from a larger amount that had been wired to me on a closing.  I could only get 15K that day (at 1/2 hour before closing) but I got the rest the next morning, but after 10am.  The manager confided in me that they usually require notice of any cash withdrawal amounts over $10k.  I refrained from my usual WTF! routine, but I really should have created a "diplomatic" scene.

Wed, 04/06/2011 - 04:07 | 1139983 ATG
ATG's picture

This defines fractional reserve banks

Amounts over $3000 require IRS Treasury forms

and amounts over $10,000 require actual reports to the Treasury

Why there are limits on ATM withdrawals

Tue, 04/05/2011 - 14:47 | 1138046 Augustus
Augustus's picture

When the price of food increases, so that the man must sell the $20,000 Harley for $2,000 to fund the purchase of $2,000 of food that once cost $500,

Is that a sign of inflation or deflation?

Bloody Knives can cut you so be careful with them.

Tue, 04/05/2011 - 14:56 | 1138056 vast-dom
vast-dom's picture

it's actually still inflation Augustus as new Harley sales will be heavily impacted by 2ndary market (ie used market) glut plus Harley parts will increase in price and demand for Harley is elastic rel. to food and oil which will be accounted for in inflation measures vs. relatively speaking niche products.

You'll cut ur fingers off kid, playing wit dem knives!

Tue, 04/05/2011 - 15:01 | 1138090 Augustus
Augustus's picture

Yes, I would expect that sales of new Harleys would be affected by the declining prices of the used ones.  Would you expect the prices of the new Harleys to be increasing (inflating) or declining?  If they are declining in price and still fewer new ones are sold, is that inflation?  Consider that fewer sales of new ones will decrease the demand for Harley materials purchases.  Will that cause those materials prices to increase or decrease?

Tue, 04/05/2011 - 15:26 | 1138189 vast-dom
vast-dom's picture

what would you estimate the %age of Harley and other quasi-to-certifiable luxury goods make up the CPI relative to food, oil, basic necessities etc.? 

In hyperinflation you sell your crap for bare essentials. The CPI will then in turn track your relatively inelastic purchases while you take a nice hit on your toy$ and such (further pressuring j-6-pack vs. j-6-pack fireselling crap and driving up prices [yes a stretch but not too much]) and the latter will not turn up in said accounting (and the hit to Harley on new sales [ie tracked sales] will be more than offset by inflation to inelastic goods]. Ergo, hyperinflation at 55mph on a Harley-tractor and a bit more palatable on a Ducati....

 

The above is barely econ 101 man.

Tue, 04/05/2011 - 16:32 | 1138457 Augustus
Augustus's picture

I see that you were limited in what courses you could squeeze into the schedule.  You might find, on a full analysis, that there are courses beyond econ 101.  Sign up for some of those if you can qualify.

An increase in the price of foodstuffs is not, in and of itself, a cause of hyperinflation.  Currently the percentage of income spent on food is lower than the percentage spent on housing, at least in the US.  So consider your analysis in view of the fact that the rapid increase in home prices did not lead to hyper inflation.  Further, it is not necessary that an increase in food prices, a smaller budget component, will lead to hyper inflation either.

How does the world price of gold or oil have anything to do with the price of coconuts on Yap?  My guess is that it has little correlation.

 

 

Tue, 04/05/2011 - 16:36 | 1138465 Flakmeister
Flakmeister's picture

You do understand the connection between food and oil, do you?

Tue, 04/05/2011 - 19:38 | 1138756 vast-dom
vast-dom's picture

Yes Augustus you are right. I am wrong.

 

"Currently the percentage of income spent on food is lower than the percentage spent on housing, at least in the US." Precisely! Because housing WAS hyperinflated ie a big fat juicy bubble! Still is over-valued and getting corrected and, let's make a huge leap right here right now: the inverse relationship between housing market correction more at disaster with inflation as function of Fed action re: said housing corrections which in turn tie into banking fundamentals, or lack thereof. A staggered and delayed ripple effect of said "hyperinflated" sector setting up global hyperinflation -- one of several variables in a relativly slow unwinding of economy with true hyperinflation as possible outcome.

My man, you may just be a tad over-qualifed! And don't worry, since you can't eat or drink oil it actually has nothing to do with food prices so please don't worry about any correlations, k?

Wed, 04/06/2011 - 03:39 | 1139966 Augustus
Augustus's picture

You continue to make unsound attributions of cause and effect.  You seem to be stating that it is the DECLINE in housing costs that have triggered hyyperinflation.  That is a novel theory but seems improbable on the face of it.  It does not seem probable that it is a declining price of assets that causes people to to unload their cash holdings to purchase more of those assets, leading to hyperinflation.  In hyperinflation it is the nominal prices of all assets that is increasing, not declining.  There is certainly more to learn in economics than what you were able to pick up in econ 101.

Wed, 04/06/2011 - 04:11 | 1139984 ATG
ATG's picture

Gresham's Law

Tue, 04/05/2011 - 14:49 | 1138050 vast-dom
vast-dom's picture

Gots to love that tasty logic!

Lira serves up some Fuckashima-enriched toro sashimi to Ackerman. The question is: how long can Ack-man hold out his bowels for that glow-in-the-dark turd he's gonna have to produce?

 

Thanks Lira. I had major issues with the Ackerman article from the start....c

 

Tue, 04/05/2011 - 14:53 | 1138066 Gonzalo Lira
Gonzalo Lira's picture

Happy to oblige. 

 

GL

Tue, 04/05/2011 - 15:04 | 1138121 Shell Game
Shell Game's picture

One very positive outcome from Ackerman's essay has been this lively debate.  Excellent writings, thank you.

Tue, 04/05/2011 - 16:36 | 1138467 Calmyourself
Calmyourself's picture

I also appreciated the rebuttal.  Mr. Ackerman did not support his arguments properly. 

Wed, 04/06/2011 - 01:54 | 1139885 rickack
rickack's picture

Try me now:  www.rickackerman.com

 

Tue, 04/05/2011 - 14:55 | 1138070 MrMorden
MrMorden's picture

This is just crazy talk.  The Bernank will save us.

Tue, 04/05/2011 - 15:07 | 1138133 Troublehoff
Troublehoff's picture

ah yes, the Bernank

 

I wonder what Volcker makes of all this? My guess is that in the Bernank's shoes he'd have been forced to do the same thing. The system was/is beyond saving with high interest rates.

 

Austerity AND printing? Now that might just work.

Tue, 04/05/2011 - 15:17 | 1138181 Muir
Muir's picture

and what is this, may I ask, is this not an assumption??!

"The Bernank and the Fools at the Fed will just keep on printing money, month after month, propping up a literally bankrupt government, because they have no other choice."

-

Is word of GOD?

For someone who derides assumptions, and postualtes logic he gives a duzy.

-


Tue, 04/05/2011 - 15:23 | 1138198 vast-dom
vast-dom's picture

give it some time -- hindsight will prove 20/20-logic ;)

Tue, 04/05/2011 - 18:54 | 1138964 goldsaver
goldsaver's picture

Because even though past performance can not guarantee future results it is a logical assumption that if you fall of an airplane you will get closer to the earth the longer you are falling, until you come to a sudden stop.

Tue, 04/05/2011 - 15:28 | 1138231 tek77blu
tek77blu's picture

gold and silver will move higher with increasing velocity...once the miners begin firing on all cylinders like the dot com bubble, all these Krugman types are going to herald the new boom and opportunity in mining shares and precious metals.

http://www.youtube.com/watch?v=L_oh5ke2Cf8

Tue, 04/05/2011 - 15:31 | 1138237 Black RobedRegiment
Black RobedRegiment's picture

Well we know the FED is a private corporation and not part of the government- and we know bankers always do what is in their best interest- no altruism here- is it possible the FED is letting the USGov buy the rope with which it will hang itself, and take possession of all federal properties when the sovereign defaults? Then we have President Bernank?- the United States of TBTF?

Tue, 04/05/2011 - 15:43 | 1138301 nontaxpayer
nontaxpayer's picture

Lira may be right but he should stick to pretending he's a filmmaker, not an economist.

Tue, 04/05/2011 - 16:23 | 1138432 Stuck on Zero
Stuck on Zero's picture

Well done Gonzalo.  Like a turkey shoot, huh?  Ackerman's assertion: "It can't happen here."  is an open invitation for a mortal to being struck down by God (the omnipotent guy with the huge sense of humor).  How many times have we seen that before?  Fifty years ago no-one would have believed that our current government could be so corrupt.  It couldn't happen here.

Wed, 04/06/2011 - 01:56 | 1139888 rickack
rickack's picture

...or is it deflation that can't happen here?  Gobble-gobble.

Tue, 04/05/2011 - 16:22 | 1138438 Hannibal
Hannibal's picture

MONEY: digits on a computer screen. Wow, fucking awsome.

Tue, 04/05/2011 - 16:41 | 1138485 dootyfree
dootyfree's picture

All hyperinflations since 1900 were caused by exogenous events like war, regime change and such.  Hyperinflation is the result not the cause of the publics loss of faith in currency.

Tue, 04/05/2011 - 19:01 | 1138974 goldsaver
goldsaver's picture

Woah Dude! False logic alert! That is like saying that since Princess Diana died in a car crash, been royal is a fatal condition.

 

Hyperinflation in Argentina was not caused by a regime change, but as the logical conclusion of decades of corruption, the IMF and artificially pegging the Argentinian dollar to the US dollar. The de-peg was forced by the IMF and agreed to by a corrupt leadership.

 

 

Tue, 04/05/2011 - 16:49 | 1138511 gkm
gkm's picture

Neither of these guys get it.  Hyperinflation doesn't stem from inflation.  It stems from deflation.  The 70's weren't deflationary.  It's only through a situation where the market can't function normally that you can even get hyperinflation.  

In Weimar Germany there were a few causes, but one of the key ones was the War Reparations currency exchange account.  Zimbabwe couldn't get credit.  Credit is of course DEFLATIONARY.  It's only if you don't allow the credit cycle to work that you will end up with hyperinflation.  

So how might you end up with hyperinflation?  How about with ZIRP or with zombie banks that hold all the money but are unwilling to lend.  So you push on a rope for a while but don't think its doing anything, until somewhere the other end of the rope falls off the table.  And then by the time you see the rope going out - it's too late.

Tue, 04/05/2011 - 18:18 | 1138844 Freebird
Freebird's picture

As the saying goes - deflation is the midwife of hyperinflation

Tue, 04/05/2011 - 16:57 | 1138551 goldenrod
goldenrod's picture

Both Rick and Gonzalo are correct in their own ways.

1. The price of food, energy and precious metals will continue to increase (inflation).

2. The price of assets bought with credit (e.g., a house) will collapse (deflation).

Gonzalo himself illustrates this with an example where a person sells his $20,000 motorcycle for $2000 in order to buy expensive food.

 

Tue, 04/05/2011 - 18:19 | 1138851 Freebird
Freebird's picture

Stagflation.

Tue, 04/05/2011 - 17:02 | 1138568 granolageek
granolageek's picture

Mr. Lira,

You are clearly on record as endorsing Auguste Pinochet for fixing the economic policies of the predecessor he overtyhew in a coup d'etat. The same Auguste Pinochet that cooked the Chilean constitution so that all former presidents, that would be him, were senators for life, and immune from prosecution for any crimes it later turned out they were guilty of. The same charming man that was unable to go to the UK for medical treatment because the Kingdom of Spain has a murder warrant out on him, a rap he dodged only by claiming senility, not because he wasn't blatantly guilty. Note clearly all you Austrian dudes. This is not some funky economic crime, HE IS ACCUSED OF MURDER and does not dare face the charge..

 

Please explain your reasoning for covering his ass on this. I would also much appreciate seeing Tyler's explanation for letting you off on this one.

 

Tue, 04/05/2011 - 21:48 | 1139450 Gonzalo Lira
Gonzalo Lira's picture

Hitler promulgated the autobahn, and helped designed the VW Beatle—does that mean that whenever I drive on a German highway in my Love Bug, I'm a Nazi?

 

The Chilean AFP private pension system is excellent, extremely popular in Chile, and most importantly, it works. The Pinochet dictatorship implemented it—does that mean that a good idea, well structured and well executed, which genuinely helps workers, should be scrapped because Pinochet implemented it?

 

That's stupid. 

 

And FYI, it's "Augusto" Pinochet, not "Auguste". Next time, know what you're talking about when you address me. 

 

GL

Tue, 04/05/2011 - 17:11 | 1138594 velobabe
velobabe's picture

gonzo, you could also use a sword to make that cut. i assure you it cuts right on through, crisp cut. i kinda put him down in my comment. he lives in superior Colorado. it is really inferior Colorado, like Cleveland Ohio, with just a better back drop - a view of the foothills. what a square thinking man. he had me at, view of the foothills. christ it is a view of rockies, why stop at the foothills. Superior Colorado is plain and simple sprawl. but he was on the max keiser report, and i didn't care for much of what he said, in his interview. last week max had some strange men on. oh well, good to read you again.

zerohedge rocks as usual.

Wed, 04/06/2011 - 00:24 | 1139764 dogbreath
dogbreath's picture

yeah

 

Ackerman has removed his link from sites that don't reflect his world view.  I do question where the "hyper" inflation comes from if the money supply isn't expanded.  Just because the bernack creates a shit pile of money available to the banks doesn't mean this pile is available to chase a loaf of bread.   Therefore his deflation arguement may be correct as we know the "price" of what we need will go up and the "price" of what we do not need will go down.  With out the extra supply of ready CASH there won't be a hyper event.  The lack of cash will drive prices lower.

 

Got cash bitchez

Wed, 04/06/2011 - 01:59 | 1139890 rickack
rickack's picture

Don't care which sites link me, dog, as long as they spell my name right.

Tue, 04/05/2011 - 17:17 | 1138619 Sad Sufi
Sad Sufi's picture

Gonzo,

What Ackerman argues in his comments (but only alludes to in his piece) has not been addressed by you, and his view correlates with Stoneleigh's:

The bankers (Fed Reserve and other TPTB) are the owners of real assets and won't be stiffed by taking payments (interest and principal) in diluted dollars. 

Please address this.

Thanks, SS

Tue, 04/05/2011 - 17:41 | 1138673 steve from virginia
steve from virginia's picture

Lira and Durden both must both work for Bernanke, hired to spread dollar poison.

When Warren Buffett and Bill Gates and the rest of the richie riches stop taking bucks I'll be a believer, but not before.

Keep in mind that Buffett, Gates et al OWN the Fed. They aren't going to piss on themselves.

The (dumb) assumptions underlying both Lira and Ackerman is that, a) there is some kind of post- modern 'wealth' that exists outside of modernity and, b) there will always be a form of 'money making money'.

What exists as wealth today will vanish completely as it is a child of our pathetic culture of waste. There is no such thing as 'wealth' to preserve. A Piaget watch is worthless in a world where nobody cares what time it is, money has no value if there are no stores to spend it in and the industry- centric claims money/credit represent have no worth when there is no industrial output to make any claims upon.

What is taking place is the end of financialism along with the decline and fall of mass production/economies of scale and industrialization.

In the next five years it won't matter what you have or 'own' but what it is you can contribute. Both Lira and Ackerman will have to learn something useful to do such as carpentery.

 

Come to think of it I feel sorry for both of their lazy asses ...

 

 

Tue, 04/05/2011 - 17:37 | 1138683 strannick
strannick's picture

'I hope Lira likes the taste of crow'

Do you mean because after the inevitable hyper-inflation that Lira predicts, no one will be able to afford beef?

Tue, 04/05/2011 - 19:04 | 1138723 akak
akak's picture

In the FEMA camps for the post-hyperinflationary millions of homeless and indigent, the very concept of "afford" will be meaningless --- you will eat (what little) you are given, and you will like it!  And if that happens to include crowmeat, you will probably be able to count yourself lucky.

Tue, 04/05/2011 - 18:03 | 1138797 illyia
illyia's picture

That was delightful, Gonzalo.

Thank you.

Tue, 04/05/2011 - 20:01 | 1139175 VyseLegendaire
VyseLegendaire's picture

I'm so sick of Lira's auto-fellatio.  Can't the man just get to the point?

Tue, 04/05/2011 - 20:08 | 1139204 tradewithdave
tradewithdave's picture

I have enjoyed the deflation/hyperinflation debate and have learned a few things along the way.  Thank you to Messrs. Ackerman and Lira.  If you want to experience the full triangulation the issue you will need to also read the review of the same article by the blogger FOFOA (also known as home of the Freegold Hypothesis).  Between Mr. Lira's philsophical background and FOFOA's explanation of the role consciousness plays in the mind of the money-holders you are bound to uncover something new.

"Amongst many counselors is safety."

http://tradewithdave.com/?p=5906

At TradeWithDave.com this entire subject falls under the category of "reset switch."  It's the thing that goes "click" in the night. 

Dave Harrison

www.tradewithdave.com

Tue, 04/05/2011 - 20:52 | 1139316 laughnow
laughnow's picture

'most branches carry $200K to $1 million in cash—and that’s the small branches.'

Not sure what planet youre on GL but this is flat

wrong. I have accounts at 3 different banks, 1 TBTF

You cant get more than $10k w/o 3 days notice

and over 50k requires a week. 4 50K w/d wipes

out a local branch cash. In addition you get major hassles

trying to get your own money out of the bank.

Cash is scare and hard to get regardless of what you say.

 

 

 

 

 


Tue, 04/05/2011 - 22:29 | 1139535 Species8472
Species8472's picture

"In his piece, it’s clear he doesn’t realize hyperinflation is an effect of rising prices."

Backwards, rising pices are the effect of hyperinflation.

 

Wed, 04/06/2011 - 04:23 | 1139988 ATG
ATG's picture

we do not have hyperinflation or hyperdeflation at the moment

We have inflation in cash assets and deflation in credit assets

If we are wondering whether more of either is likely, we might consider which is less popular

Wed, 04/06/2011 - 11:30 | 1141099 sherryw
sherryw's picture

Gonzalo,

I usually read all posts right to the end and have been doing so here for nearly two years. I had to stop half way through this latest of yours .Why? Rick Akerman is one of the 'good guys', the inflation/deflation/hyperinflation debate has been attacked from all angles by many respected writers as we all try to get our heads around what the hell it is coming down the tracks, and you have the bad manners, or is it fragile ego, to diss him rather than debate him respectfully. I have taken great interest in your writings till now. Get off your high horse. You have become obnoxious. Oh, and FOFOA's response was sooo much better. 

Wed, 04/06/2011 - 20:42 | 1143530 Element
Element's picture

I remember reading Gonzalo about 6 or 7 months ago saying that in Mar-April 2011 we would be seeing ~5% inflation in the US ... and this would be seen as a green-shoot for demand growth recovery ... and from there on it would spin out of control thru 2011 ...

close enough so far

Thu, 04/07/2011 - 04:27 | 1144451 Two Face
Two Face's picture

"That's as good as money, sir ... those are IOU's.  Go ahead and add it up ... every cent is accounted for."

http://www.youtube.com/watch?v=7GSXbgfKFWg

Sat, 04/09/2011 - 21:15 | 1154161 thames222
thames222's picture

Ackerman's a joke...I love hearing what he has to say, just so I can completely rebuke it.  The dollar is dead, last night's solution wasn't really a fix at all.

 

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