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Guest Post: The Mathematics Of Hyper-Inflation

Tyler Durden's picture


From Alasdair Macleod of FinanceAndEconomics.Org

The mathematics of

have already passed the point of no return on our
journey into hyper-inflation for many paper currencies,
and investors seeking to protect themselves from
currency debasement should understand why. This opening
statement is valid even if we ignore today’s abounding
systemic risks.

There is a simple reason why monetary inflation becomes
an exponential phenomenon. As currency is debased, an
increasing quantity of money is required to achieve the
same real-money effect.  For example, if the quantity of
money is increased 25%, the initial benefit to the
issuer is a tax of that amount on the holders of
previously-existing money stock.  To achieve the same
tax in real terms for a second time requires a further
expansion of 31.25% of the original monetary units, and
continuing with subsequent 25% expansions on increasing
totals we obtain our exponential series of monetary

practice, the realisation of the loss of purchasing
power a currency suffers depends on how quickly it is
transmitted into the general price level, and this can
vary considerably; but eventually it is reflected in
prices. So we need to consider the likelihood of an
improvement in government finances sufficient to
eliminate reliance on funding through the printing of
money, which is the root of this evil. It is here that
governments have great difficulties, which lie generally
in the nature of government bureaucracy.

government departments, there is always a complex and
expensive structure designed to ensure compliance with
the wishes of the executive, and to ensure that public
money is properly used. This is why boxes are ticked;
why it is so important to employ gender and race
equality officers to ensure a department complies with
government policy. The process, therefore, overrides the
result, and nothing can change this. So when a
government restricts public spending, there is no cut in
bureaucracy; on the contrary, often more bureaucracy is
required to administer the cuts and monitor the results.

consequence is that restraint in public sector spending
always feeds through disproportionately to cuts in
services, leading to public outcry. And this is
precisely the problem faced in Britain today. The
Coalition government has adopted a hard line on public
spending, following the profligacy of the previous
socialist administration. This corrective approach is
creating uproar, not only from users of government
services and civil servants, but also from the
intelligentsia who fail to properly understand the true
cost of public services. So Keynesian economists are
providing the public with an intellectual argument
against the cuts by claiming they are recessionary, and
opposition to them is growing.

What has become lost in the political debate is that at
no time is the Coalition government actually cutting
public spending: it is set to rise in every year of this
The pain expressed so loudly in all sections of the
community is solely the result of a reduction of the
increase in previously planned expenditure. It is
evidence that bureaucracy triumphs over services
provided, and it is an illustration of the extreme
difficulties politicians face in merely reducing the
rate of increase of public expenditure.

These difficulties have their roots in the current
situation, but a glimpse at the future also confirms
government spending has to rise exponentially, with
welfare and other future liabilities compounding at an
alarming rate.  We know that there are more pensions to
provide and people are living longer, requiring
increasingly expensive care services; and that all this
is expected to be funded from the public purse. Less
appreciated are the long-term destructive effects of
inflation on private sector savings and nominal cost of
providing state welfare. In other words, inflation
itself has directly increased the burden on the state,
and indirectly has ensured there is little private
capital to fund any shortfall.  Consequently, future
public spending is firmly tied to an exponentially
accelerating path.

most Western democracies it is already too difficult for
politicians to face up to this reality.  Instead, they
pursue policies conceived through hope rather than any
realistic assessment of the prospects, dreaming of an
economic recovery that will bring public sector
borrowing back under control. This allows governments
and their independent statisticians to concoct tables
showing economic growth, an improvement in tax revenues,
and a reduction in welfare costs as employment improves.
There is no actual evidence to support this optimism.

detailed critique showing why economic recovery is a
forlorn hope is beyond the scope of this article; but if
the private sector is expected to regenerate itself
without savings, no sustainable recovery can possibly
occur.  It will also require an historical precedent: an
economy increasingly under government command to
actually succeed. Furthermore, governments continue to
believe that all that is required is the stimulation of
further bank credit, when it was excessive levels of
bank credit that created the economic crisis in the
first place: this is the quackery of prescribing port to
cure gout. And there is very little evidence that
meaningful economic recovery is developing.

supposed economic recovery of 2010 was merely
statistical, with governments using monetary inflation
to puff up the numbers,
and not the start of an improving economic trend.
Furthermore, targeting tax increases at high earners
discourages the most successful elements in society from
further productive effort, and encourages them to
redirect their efforts at tax avoidance instead. The
consequence of these simple policy errors is to make
economic recovery even more remote and reduce actual tax
collected, and so spread-sheet forecasts of lower
government deficits are even less likely to be achieved.

all these reasons, we can see that socialistic
government policies rely on accelerating monetary
inflation. As inflation accelerates, it becomes
increasingly difficult to escape the compounding effect
of this exponential arithmetic.

only way the exponential loss of purchasing power that
results from monetary inflation ends is through the
complete collapse of fiat currencies.  Whether this is
brought on by a financial crisis or through
hyperinflation is irrelevant: the result is the same. 
Furthermore, quantitative easing programmes have merely
accelerated the trend. Particularly worrying is the
dramatic expansion of the monetary base in the US, which
has greatly exceeded our theoretical example of 25% by
increasing 168% over the last two years.  While this is
routinely explained as a policy response to the banking
crisis, it has the likely effect of accelerating future
government demand for printed money even more, speeding
up its inevitable demise.

those of us who will be victims of the collapse of paper
money, there is little point in hoping that more port
will somehow cure our gout: it will not. Nor can we turn
to our leaders for salvation: they know not what they
do. And to this rough law of the exponential trend of
monetary growth we must add the abounding systemic risks
present today, which we have ignored in order to
simplify this analysis.

February 2011



GDP numbers are deflated by a measure of cost
inflation, while monetary inflation is
considerably greater. The Increasing monetary
input has the effect of raising nominal GDP



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Tue, 02/01/2011 - 18:55 | 925536 Cheesy Bastard
Cheesy Bastard's picture

Scientific notation, bitchez.

Tue, 02/01/2011 - 19:15 | 925586 HarryWanqer
HarryWanqer's picture

A fantastic idea.  This could employ legions of scientists and engineers as consultants for those unable to read it.

Tue, 02/01/2011 - 19:31 | 925647 Michael
Michael's picture

Here is an excellent lesson on exponential functions.

The Most IMPORTANT Video You'll Ever See (part 1 of 8)


Tue, 02/01/2011 - 19:49 | 925687 william the bastard
william the bastard's picture

I'll take Laos over chaos.

Tue, 02/01/2011 - 22:03 | 926009 luckylogger
luckylogger's picture

I understand what you are saying and in one hand it is true.

However, I have not seen any studies that compares the M2 money supply with the amount of money available befor the crash due to the shadow- banking system.

Has anybody seen a comparison and if so are we up to the asame amount of money available as we were in 2008?

From what I have seen is we are not. I am very interested in seeing creadible studies that either support or reject this theory.

thanks guys

Tue, 02/01/2011 - 23:08 | 926144 Richard Head
Richard Head's picture

The money supply has barely moved, because the printed money is largely being held as excess reserves held at the Fed.  It earns a sliver of risk free interest for the banks.  My data shows that of $1.7 trillion worth of QE, M1 has only increased by $168 billion in 2009 and $141 billion in 2010.  If the banks ever decide to start lending, which would require a genuine economic recovery and not the sham we are being fed right now, then the ~$1 trillion of excess reserves could turn into $14 trillion or so vis-a-vis the reserve multiplier.

Wed, 02/02/2011 - 09:36 | 926866 New_Meat
New_Meat's picture

I've often thought that the excess money 'printed' was actually replacing money that vanished when the CDS/MBS etc. nonsense imploded and vanished off of the balance sheets.

Wed, 02/02/2011 - 12:19 | 927561 Sausagemaker
Sausagemaker's picture

+1,  I had the same thought/question. Is the money being printed in an attempt to fill a trillion-plus MBS black hole?

Tue, 02/01/2011 - 23:59 | 926257 NrYC
NrYC's picture

Irreverently hilarious.

Tue, 02/01/2011 - 18:58 | 925546 tired1
tired1's picture

Question for me is: How do the banksters expect to escape the consequences?

Tue, 02/01/2011 - 19:00 | 925553 Dr. Porkchop
Dr. Porkchop's picture

Secret stashes of gold and island getaways in warm places.

Tue, 02/01/2011 - 19:32 | 925650 stewie
stewie's picture

The Doc is right.

Tue, 02/01/2011 - 19:52 | 925697 Bananamerican
Bananamerican's picture

Hell is an island?

Wed, 02/02/2011 - 08:07 | 926686 Sudden Debt
Sudden Debt's picture


It's where all the hookers go to and where they party 24/7.




Tue, 02/01/2011 - 20:34 | 925804 Milestones
Milestones's picture

Really?? If the Jews could track and find Mendella(?) in Argentina or wherever in the 60's how pray tell are these louts going to escape detection with Internet, instant photo I.D., DNA, GPS, etc. in todays world with of course the computer to follow them.

These "super brains" are also super idiots.   Milestones 

P.S. Run to Paraguay?? Put a million $$ price tag on their head and you can have it on a platter in 3 days.

Wed, 02/02/2011 - 02:05 | 926448 minus dog
minus dog's picture

This isn't Israel - and show me one of them who doesn't know about the holocaust.

Most people in this country are clueless about anything other than football, nascar, or American Idol.  How do you expect them to understand what happened, how it happened, and who did it, and then go find them?  If it gets bad enough to warrant the effort required to hunt someone down, then they're all going to be busy slaughtering each other anyways, and arguing that it was some other faction's fault.

Our public education system simply has not prepared people to comprehend what is going on.  They're told that things work a certain way, and then they are shown - or they believe they are shown - that playing by those rules is how to acquire a big house, big TV, and a bass boat.  Most of them will keep marching into their stupid cubicle farm jobs to the bitter end.

Wed, 02/02/2011 - 02:28 | 926482 Dash Riprock
Dash Riprock's picture

Gosh darn! Aren't you a FU*KIN genius! Do you have a million to strap to their head or are you going to be worried about eating?

Wed, 02/02/2011 - 04:00 | 926573 DeltaFunctionToronto
DeltaFunctionToronto's picture


Allow me to explain:

There is a causal relationship between banking (both investment and central) incompetence (immorality) and the corresponding inflation derived therefrom. Largely, global food price inflation is a function of Western government monetary base expansion in the long run, as this has a prodding impact on the monetary aggregates of countries world-wide.

Given out of control monetary base expansion due to the above mentioned incompetence (immorality), lower median income level jurisdictions, such as outside urban and rural parts of Asia, will experience increasing levels of unrest. This is currently visible as an ensuing effect, and will become more pronounced in the months to come. The mandate of the Governments established in many of these regions, under girded by cultural responsibilities and personal constitutions, implies a need to do the following:


a) address instability, first and foremost, to stabilize the domestic security situation both in terms of violence and market prices;

b) establish and preserve public confidence in the ability of Government to effectively remedy the situational conflict;

c) ensure there is a preventative mechanism in place to avoid a future occurrence;

d) appropriately allot justice to the perpetrators.


Which of the above is most simply carried out to provide the domestic citizenry appeasement?

It costs a government, especially one as large as China's, nothing to employ currently commissioned intelligence assets for this specific purpose.

I hear all this talk of island destinations and South American or African getaways -- it means absolutely nothing. If there is a political incentive, such as the publication of capture of a responsible miscreant, to say nothing of the economic incentive to "coerce" their gold from them to add to your own central bank holdings, they will not be able to get far.

Records of position, pay and responsibilities from nearly every major governmental or non-governmental (usually financial) entity are commonly sought assessments by intelligence agencies, to establish rapport in order to penetrate nodes of weakness in relationships and security measures. Particularly interesting information that comes to light is used to coerce and compromise.

Why are these individuals not currently targeted?


Intelligence assessments establish value thresholds, or conditions which must be met in light of associated contingencies, prior to acting, in order to minimize potential harmful outcomes.


These individuals are still largely protected by the State's monopoly on protection and violence from external entities, much like the Fed protects the identity and business of its middle-men.


In time, the state loses this incentive when its upkeep becomes more costly that the purported benefit. This would be when the G6 loaded with Credit Suisse bars heads for Argentina, in an attempt to ensure a continued monopoly on violence protecting the individual is shifted to the local domestic government.

The assumption is that “I will be safe – why would anyone suspect a thing of me in Argentina?”. This is the single invalid assumption of the perpetrator – that there is no economic or political incentive to pursue him or her outside of their original domicile, and thus all other considerations are void.


This is what arrogance, immorality, and a failure to understand other cultures provides.


Much like their tenacity in prosecuting and executing those responsible for fraudulent financial transactions, they will pursue culprits of mass financial crime internationally. Take my word for this.

Wed, 02/02/2011 - 08:24 | 926699 Snidley Whipsnae
Snidley Whipsnae's picture

lol... With all the sophisticated equipment at their disposal the various gov agencies have not found the worlds tallest and probably most infamous Muslim, Osama Bin Laden.

Of course, they might not be looking for him or he might have been an electonic construct from the beginning.

A fairy tale bogeyman?

Tue, 02/01/2011 - 19:56 | 925704 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Checkout what they are constructing under Denver airport.

Wed, 02/02/2011 - 01:13 | 926376 Bob Sponge
Bob Sponge's picture

Very interesting. Thanks.

Wed, 02/02/2011 - 06:54 | 926645 Confused
Confused's picture

Damn, just when I thought I couldn't get any crazier. Thanks for sharing. 

Wed, 02/02/2011 - 08:05 | 926664 slewie the pi-rat
slewie the pi-rat's picture


Tired 1 sez: Question for me is: How do the banksters expect to escape the consequences?

Ans.: they are super-intelligent master criminals, and there is nothing we can do.

just kidding.

actually, they are just a bunch of thugs, like the Beagle Boys in "Uncle Scrooge" comics.  Remember when we were kids:  how could the folks in Duckville be so DUMB as to not see this?

just maybe we are so well conditioned to be sheep that they just do it plain sight, while the vast majority, who "pay attention to the imortant news of the day in the MSM, by watching TV" think everything is fiiiine because we MUST pretend not to notice. 

wtF?  well, even tho virtually ALL of us know the story about "The Emperor With No Clothes",  very few seem to have escaped the conditioning that this does NOT apply to ME.

in that story, the person who notices is a "child" who just blurts out:  BUT THE EMPORER HAS NO CLOTHES!!!

the "little child" is not conditioned to pretend that the absurd is normal.  the child is still REAL.  hasn't been "taught" that to step out of line and NOT be one of the sheep is VERY dangerous to the mentality, comfort, and "homeland security" of the dumbass (conditioned) sheep herd.

if this had not been a child, the "society" would have come back with a death sentence.

over the top?

ask "socrates":  death by hemlock for CORRUPTING THE YOUTH.

ask "jesus":  death by crucifixion for "claiming to have divine power" to HEAL THE BLIND SO THEY COULD SEE.

ask "martin luther king":  he had a DREAM(!) and, when he shared it, people started to UNDERSTAND EACH OTHER MORE DEEPLY.  Ka-BOOM!!!

Tue, 02/01/2011 - 18:58 | 925548 Dr. Porkchop
Dr. Porkchop's picture

Exponents are a bitch.

Tue, 02/01/2011 - 19:13 | 925584 umop episdn
umop episdn's picture

Exponential curves, bitchez.

This lecture will instill the fear of exponential growth in anyone who cares about the future.

Tue, 02/01/2011 - 19:26 | 925622 whatz that smell
whatz that smell's picture

chronoexpogrowphobia. i shudder.

Tue, 02/01/2011 - 19:44 | 925676 samsara
samsara's picture

The Second part should be manditory viewing by everyone.

and Part III

start at :50 seconds

Tue, 02/01/2011 - 18:59 | 925550 NOTW777
NOTW777's picture

"socialistic government policies rely on accelerating monetary inflation"

ben and obama

karl and marx

Tue, 02/01/2011 - 19:02 | 925557 CowboyMonkey
CowboyMonkey's picture

Corn closed at 666...coincidence......I think not

Tue, 02/01/2011 - 19:04 | 925562 NOTW777
NOTW777's picture

soybeans +25

Tue, 02/01/2011 - 19:51 | 925691 william the bastard
william the bastard's picture

In your socialist fury you missed the irony.

Tue, 02/01/2011 - 19:02 | 925558 robertocarlos
robertocarlos's picture

The crisis is over. Except for housing.

Tue, 02/01/2011 - 19:52 | 925699 william the bastard
william the bastard's picture

sarc meter=10?

Tue, 02/01/2011 - 20:17 | 925771 robertocarlos
robertocarlos's picture

Mine goes to eleven.

Tue, 02/01/2011 - 20:39 | 925818 Cheesy Bastard
Cheesy Bastard's picture

Why not make ten 1 snarkier?

This goes to 11.

Tue, 02/01/2011 - 19:03 | 925559 buzzsaw99
buzzsaw99's picture

genben can fix this in like 15 minutes.

Tue, 02/01/2011 - 19:10 | 925578 asdasmos
asdasmos's picture

but can he tender his resignation in that same 15 minutes as well?

Tue, 02/01/2011 - 19:29 | 925633 buzzsaw99
buzzsaw99's picture

That would put Sack and Frost out of work too.

Tue, 02/01/2011 - 19:35 | 925657 stewie
stewie's picture

He was referring to an Inception-type "15 minutes" where his "15 minutes" feel like 15 years to us, on the outside of his recursive mind-fuck.



Tue, 02/01/2011 - 19:51 | 925690 buzzsaw99
buzzsaw99's picture

Well, in theory he could but that would mean stepping on the tbtf execs necks, those same execs who own hizzazz. Theory works, implementation, not so much.

Tue, 02/01/2011 - 19:10 | 925564 Caviar Emptor
Caviar Emptor's picture

Simply put: what if the roller coaster just kept zooming higher after the rails already started going lower? What if the G-force set in motion from the whip-turn at the bottom just made the cars coast into space instead of being guided to a soft landing? Man what a final flameout that would be! That's what might happen to prices despite the Fed's vain attempts to guide them lower. 

Tue, 02/01/2011 - 19:05 | 925565 I think I need ...
I think I need to buy a gun's picture

ok so there is no difference between communist soviet union and free capitalist america. So does this end gold 36000 or is all the muni debt mortgage debt and all other debt wiped out and we end up like argentina. And with 36000 gold they go and buy all the bridges roads water companies and everything the us sheeple need to survive.

This was planned. Look back at the last 10 years they knew where they were going all along.

Peter Schiff circa 2007 "the only thing left will be all the debt we owe to foreigners"

Tue, 02/01/2011 - 19:12 | 925581 Caviar Emptor
Caviar Emptor's picture

It's called presiding over the demise, making sure it's as gradual as possible and striping the carcass clean of anything of value that remains by those with the power to do so

Tue, 02/01/2011 - 19:28 | 925631 potatomafia
potatomafia's picture

Peter Schiff FTW!

Tue, 02/01/2011 - 19:59 | 925718 william the bastard
william the bastard's picture


Tue, 02/01/2011 - 20:36 | 925814 robertocarlos
robertocarlos's picture

It ends with me on the street selling my leather shoes.

Tue, 02/01/2011 - 19:07 | 925567 Gashole
Gashole's picture

 Newbie question:  Why won't the Fed simply be able to quickly tighten and remove liquidity?

Tue, 02/01/2011 - 19:14 | 925590 Rainman
Rainman's picture


Tue, 02/01/2011 - 19:19 | 925599 whatz that smell
whatz that smell's picture


until the last dollar is destroyed this beast will rampage. 666$999.

Tue, 02/01/2011 - 20:03 | 925727 william the bastard
william the bastard's picture

R U Related to Gashole?

Tue, 02/01/2011 - 19:15 | 925596 nope-1004
nope-1004's picture

Banks would be insolvent and go broke.  States would be insolvent.  Everyday services halted.  Unfunded liabilities (health care, pensions, etc...) would be washed away, creating chaos and civil unrest.

All the fed did was buy time in the hopes that something, anything, would create a turn around.  It didn't.  We're screwed.

Buy some PM's while they're still semi-available.


Tue, 02/01/2011 - 22:23 | 926041 slewie the pi-rat
slewie the pi-rat's picture


nope, not 2 worry, 10-04, gd buddy, everything will be fine:  first, the prices of stocks and commodities double from where they are, now.  another six weeks, basically.

then, the puppetmasters start collapsing the pinocchioes.

first, it's BTFD, of course, then, as the death crosses start lighting up the screens, everybody starts selling, at once, with the PPT angels insuring an orderly market, as we might expect.

people will owe so much in taxes, and the goobermint will haul in so much of that new "money lite", that:

voila!  fiscal integrity!

AND, we'll be able to buy krugers, again, for $250!

how sweet it is!

Tue, 02/01/2011 - 19:17 | 925601 I think I need ...
I think I need to buy a gun's picture

The fed can't tighten meaningfully.....the economy would stop and whats the interest on all the debt owe to foreigners? We forced japan with plaza accord to take the hit,,,,,china ain't taking the hit, they'll take the hit when they are ready in the form of gold revaluation. They aren't going to do what japan did and buy US assets they are buying all natural resources related things.


In 1980 when volcker stopped golds rise he had to go to 18% and most americans gained from that because they owned the debt. 18% is armaggadon without a gold revaluation first.

Tue, 02/01/2011 - 19:37 | 925663 rookie
rookie's picture

Also, in 1980 there weren't $15 trillion in interest rate derivatives

Wed, 02/02/2011 - 01:54 | 926432 prophet_banker
prophet_banker's picture

least back then in the days of high interest the banks actually paid savers for deposits, unlike today, where banks give us nothing for them

Tue, 02/01/2011 - 19:21 | 925612 akak
akak's picture

Because the production of magic wands, like that of everything else except armaments and devices essential to the Surveillance State, has been moved offshore, along with an embargo having been placed on all such manufactured products from Utopia.

Tue, 02/01/2011 - 19:23 | 925614 redpill
redpill's picture

Because then we couldn't afford to pay the interest on the trillions in debt we have now, and the trillions more we need to borrow tomorrow. Rock and a hard place. The only thing we can afford less than continuing to print money is not continuing to print money.

Tue, 02/01/2011 - 19:36 | 925661 DaBernank
DaBernank's picture

Restructuring must occur. What type of restructuring will not result in a military exchange, that is the question.

Wed, 02/02/2011 - 06:22 | 926612 slewie the pi-rat
slewie the pi-rat's picture


yep. restructure.  default. abrogate. end the FED.

i'm not so worried about the foreign military.  the enemy is within:  95% domestic/5% foreign risk to our sovereignty, at this point, IMO.  we need to put our house in order.

if We The People do OUR job, other goobermints might scream bloody MURDER at us.

oh, well! let 'em scream & howl.  i do not believe other PEOPLE will mind one teensy weensy tiny bit if they REALly see us putting our house in order.

if we can get our heads un-wedged long enuf to figure out how to do it RIGHT (and i mean conceptually, primarily, not via civil war) other goobermints/central bankster systems may well find that we are speaking quite loudly by our actions at home, and that their PEOPLE are hearing and seeing how it CAN be done.

if this be the case, other goobermints will have their hands full at home, too, trying to avoid getting their heads handed to them, quite literally, in some places, i would imagine.

personally, i feel that one of OUR biggest problems is the politicization of the Justice Dept., completed by Bush/Gonzales/"Chief Justice"Roberts.  lQQks like prez0bummer has bought into it, too.  why not, it's pretty fucking nice for the Beagle Boys, doncha think?

IMO, this MUST become a national issue.  if WE are to re-claim Justice for our wayward nation, we MUST begin to ponder, together, not only the fix we're in, but the fixing we must do to re-establish, yes, law and legal order in this once-great nation.

if some people don't know the difference between shit and shinola, it does NOT mean that EVERYBODY is confused, and has lost the sense of smell, and the scent, as well.

the game is afoot.

long live the internet! 

Tue, 02/01/2011 - 20:02 | 925720 william the bastard
william the bastard's picture

Maybe you shouldn't post here. Nice name though. That's what my brothers used to call aunt Ada

Tue, 02/01/2011 - 20:22 | 925780 Rainman
Rainman's picture

...actually, Gashole's question will be covered extensively in The Great Collapse book to be released in 2030. 

Tue, 02/01/2011 - 23:11 | 926150 Richard Head
Richard Head's picture

Because rates would have to rise as the Fed tries to sell Treasuries, so any recovery would collapse. 

Tue, 02/01/2011 - 19:15 | 925571 kengland
kengland's picture

What about global wages or anything that is manufactured that can be used as collateral for loans? Everything in those catagories is deflating. With real wages in the US somewhere in the 90's how can the debt, THE LEVERED 40/1 debt, ever be paid back? When that collapses, and we are early, that can't possibly be inflationary. Sure we have spike in commodity prices but without wages to support demand by say G8 it's temporary

Tue, 02/01/2011 - 19:16 | 925598 Caviar Emptor
Caviar Emptor's picture

It's biflation, baby. In this new world, we're not alone in competing for depleted commodities and natural resources. We've given everybody the chips to clean the shelves with. Even if our wages drop prices can still go up and up. The only thing preventing total extortion is our military. This week, the cracks in the empire are beginning to multiply. 

Tue, 02/01/2011 - 19:42 | 925615 kengland
kengland's picture

I don't know if you had a chance the other day to read the WSJ story regarding the hedge fund that held 850mil in gold contracts with 10mil in cash? It's debt. You're right. Repricing is one effect but one that can't be sustained in the long run. It's ones ability to take on more debt that creates the inflation and once that reaches max potential it goes BOOM. For those that have added leverage or capacity based on the false prospect of demand or repriced assets, it's over. They are either deflating or competing for the marginal dollar to pay off debts.


Something to consider....what do you suppose the demand will be for anything when the long bond gets anywhere near 8%. It's silly to think about a time when a mortgage at 7% was a gift. Demand will fall off a cliff with prices collapsing at that rate.

Tue, 02/01/2011 - 20:08 | 925742 Caviar Emptor
Caviar Emptor's picture

Demand will fall off a cliff with prices collapsing at that rate.

Demand may fall off here in the US, but global competition for the same limited resources will be hotter than ever. Without wage inflation. It's demand-pull inflation from 1 billion Chinese and nearly as many Indians plus many others around the world. All yearning for the same goods and services Americans enjoy. And armed with oceans of dollars that we've steadily shipped over for 40 years. 

The economy right now is a test tube experiment for biflation: real wages and net worths are dropping steadily (with real estate), yet prices rise. There just is no pricing power for US labor. That was engineered beginning in the 1980s. There's overcapacity in many industries. Yet input prices rise and rise. As do the structural costs of a middle class existence (not food and energy): banking fees, insurance, health care, education, tuition, home ownership costs, municipal services, apparel, permits and licenses. 

CPI won't ever register these shifts as long as housing keeps deflating. It drags down the Index. PCE was reported at 0% this week. Even so the CRB is at 2 year highs and challengin all-time highs. 

Tue, 02/01/2011 - 20:31 | 925797 robertocarlos
robertocarlos's picture

Yup. Some Chinese have no problem paying 900k for a Ferrari that is 300k in the USA. The best of the best in all goods is probably being exported from America and Europe.

Tue, 02/01/2011 - 19:57 | 925712 topcallingtroll
topcallingtroll's picture

That is traditionally called stagflation.

Tue, 02/01/2011 - 20:12 | 925752 Caviar Emptor
Caviar Emptor's picture

Disagree: the term described the situation seen during the 1970s. The difference was wage inflation which was present back then because the economy and population were growing at discordant rates. That also contributed to house prices rising fast. Today there is no wage inflation and demographics are unfavorable to it. And the economy is growing at a slower rate than in the 1970s. And housing is deflating. Yet the cost of middle class existence will continue to rise. 

Wed, 02/02/2011 - 02:00 | 926438 prophet_banker
prophet_banker's picture

you could call it squeezing the middle, except that it is the poor that get hit the hardest by inflation

Tue, 02/01/2011 - 19:13 | 925579 AUD
AUD's picture

Particularly worrying is the dramatic expansion of the monetary base in the US, which has greatly exceeded our theoretical example of 25% by increasing 168% over the last two years


This shows the weakness of the quantity theory of money. By this chap's calculations we should already be suffering under hyper-inflation.

Since the dollar, pound, euro etc is the obligation of their respective central bank it is in fact the quality of the asset that 'backs' the obligation that gives the obligation its value. So far government bonds remain 'money good' so the banknote remains money good. Except in Egypt.

The exponential increase in government obligations is a sure sign of a credit bubble though.

Tue, 02/01/2011 - 19:17 | 925604 nope-1004
nope-1004's picture

So far government bonds remain 'money good' so the banknote remains money good.

Until they don't.  Why sit in an apathetic trance and take that chance?

Tue, 02/01/2011 - 19:33 | 925653 AUD
AUD's picture

I never said I was taking that chance, just that hyper-inflation is not a consequence of the quantity of 'fiduciary media' circulating, rather a failure of the government bond market which is expanding at an alarming rate.

It would not surprise me one bit if hyper-inflation in Germany & Zimbabwe etc was preceded by an alarming increase in government bond issuance to the point where government bonds more or less were the dominant credit instruments of the 'money market'. Sort of the case now in so called 'developed' economies.

From that point it is not hard to see the consequences of a bursting of the government credit bubble.

Wed, 02/02/2011 - 02:05 | 926444 prophet_banker
prophet_banker's picture

you're right to identify the bond market as the money supply, and wouldn't the owners stand to profit greatly from it's gradual decline.... just how orderly it is will correspond to financial pain felt

Tue, 02/01/2011 - 19:13 | 925587 TorchFire
TorchFire's picture

Tap out all available credit. Convert the fiat crap you get in exchange for something of value like PM or guns. Pay debt service of one bankster with another's money until the fast approaching collapse arrives. Wait til your system worshipping banker and lawyer neighbors come to your door for food. Yell out your window with dinner in one hand and a gun in the other, "Woooo Hoo...BITCHEZ!!!  Time ta go!!"

Tue, 02/01/2011 - 19:34 | 925656 gwar5
gwar5's picture

Damn fine idea. Especially the part about the non-recourse credit cards to tap out the metals.

Tue, 02/01/2011 - 19:22 | 925616 trav7777
trav7777's picture

u want the fuckin math?

sum x^n / n!  as n:0->infinity

Tue, 02/01/2011 - 20:32 | 925800 BlackSea
BlackSea's picture

n^n not x^n and then I'll believe you ;)

Tue, 02/01/2011 - 20:42 | 925823 Cheesy Bastard
Cheesy Bastard's picture


Tue, 02/01/2011 - 21:08 | 925857 Mark McGoldrick
Mark McGoldrick's picture

How do you mathematically describe relative confidence?

Hyperinflation cannot be expressed mathematically, especially within an open, relative system of continuously changing rules and influences.

If the evisceration of a currency was a mathematical event, we would already have been toast.  


Wed, 02/02/2011 - 00:08 | 926274 trav7777
trav7777's picture

does nobody recognize this power series?  disappointed...

Wed, 02/02/2011 - 02:58 | 926524 SilverRhino
SilverRhino's picture

It LOOKS like combination and permutations formula. I've seen it in class. Just can't recall it exactly. Pity. So what is it?

Wed, 02/02/2011 - 11:41 | 927359 Flakmeister
Flakmeister's picture

   Yep... Not much of surprise though, all things considered

Tue, 02/01/2011 - 19:29 | 925632 Johnny Lawrence
Johnny Lawrence's picture

1000% true story.

I was just at a strip club. I overheard the young female bartender say, "I want to invest in stocks."

I shit you not.

Tue, 02/01/2011 - 19:30 | 925639 buzzsaw99
buzzsaw99's picture

Show us your titties!

Tue, 02/01/2011 - 20:23 | 925781 william the bastard
william the bastard's picture

That looks like a top.

Tue, 02/01/2011 - 19:36 | 925660 tmosley
tmosley's picture

But, but, but, the bubble is in gold.  All I see is bullish talk on gold at Zerohedge, which is a shoeshine boy organization of some sort.

Stocks to infinite!

Tue, 02/01/2011 - 19:55 | 925707 william the bastard
william the bastard's picture

3 Krugs for a po'boy. Shrimp, dressed. Oh, an a Barq's, yo.


Tue, 02/01/2011 - 20:04 | 925730 tmosley
tmosley's picture

"Durr, gold won't buy one meal, durrrrrrr."

You must have a PhD in Economics.  FROM PRINCETON!

Tue, 02/01/2011 - 20:07 | 925741 william the bastard
william the bastard's picture

You'll serve my po'boy at the point of a blue steel .44 n then you'll tell me bout princes while I eat, yo.


Tue, 02/01/2011 - 21:21 | 925922 tmosley
tmosley's picture

"Durr, hurr, I think gold bugs don't own guns durrrr."

Brilliant analysis.  Now go die.

Tue, 02/01/2011 - 19:51 | 925689 Rainman
Rainman's picture

Bet you wuz pumpin' her with bullshit about being a big stock player. I'm not dissin ya, I've overheard the same thing.

Tue, 02/01/2011 - 21:00 | 925869 Johnny Lawrence
Johnny Lawrence's picture

Actually, I wasn't.  She was talking to someone else about it, but she made an announcement of sorts to whoever was listening.  My first thought was "talk about the ultimate contrarian signal" and then it was "I need to post this on Zero Hedge"...and then I gave a girl 40 fiat for a lap dance. 

Lesson to all the cannot pay for a lap dance in gold bars.

Tue, 02/01/2011 - 21:10 | 925899 Rainman
Rainman's picture

....u a playa u....40 fiat lap dance too much....go to Vegas. 20 fiat.

Tue, 02/01/2011 - 19:31 | 925641 cackling capers
cackling capers's picture

The mathematics of hyperinflation, but not an equation in there...

Tue, 02/01/2011 - 19:51 | 925694 mark mchugh
mark mchugh's picture

Point taken.

Tue, 02/01/2011 - 20:18 | 925765 cackling capers
cackling capers's picture

Ok its a slightly supercilious remark. It is just that exponential growth is fascinating in and of itself. Variants of it in different systems of differential equations can also be very interesting, so I was hoping for some treatment of mathematics as valid for hyperinflation.

Ah well, excuses to the author for the bitchiness and thanks for sharing your work!

Tue, 02/01/2011 - 19:36 | 925662 gwar5
gwar5's picture

If people start seeing inflation and seeing the riots they'll start spending and stocking up -- $$ velocity

Stores will be running pre-riot specials. Damn if Glenn Beck wasn't right.

Tue, 02/01/2011 - 19:47 | 925682 TideFighter
TideFighter's picture

Thanks for the extra large bold type. It's easy to read on my 24" Mac.


Tue, 02/01/2011 - 19:48 | 925685 mark mchugh
mark mchugh's picture

I agree with your premise, but I must take issue with this:

Furthermore, targeting tax increases at high earners discourages the most successful elements in society from further productive effort....

In the US, high earnings have little to do with productive effort.  Most of our highest earners are the people who have benefitted most directly from wasteful government spending.  They don't provide jobs; they outsource them every chance they get (that's why they're rich).  Or they scam their earnings from the inter-workings of our financial system, skimming the life savings of others (and yes, I can prove it). 

Even you seem to have fallen for their bogey-man rhetoric, so it's not so much that there's no escaping the collapse, its more a matter that no one has the guts to do the right thing.  And clearly that is the case.

So yes, the collapse is inevitable


Tue, 02/01/2011 - 20:08 | 925743 cackling capers
cackling capers's picture

I agree wholeheartedly. Although to be honest, most top managers (the plague term of the the century) they work like lab rats, just not in any area profitable to society as a whole.

I remember reading this book on urban sprawl that identified this as one of America's basic problems: Many driven people who in previous times would have been valuable to communities; e.g. build lovely houses, run the local council etc. etc. now work for corporate America. As a consequence these people do not have, participate or create homes in communities and the communities miss out on driven capable members.

My hope is that more people realise the power working with people in your own community, the beauty in growing your own food, making and having tools. Now I know cities will always attract for their 'happening' feel, the arts, clubs, music, the anonymity, but still making a great society may require keeping people working in it instead of working for corporations.

Reading this it comes across somewhat muddy, but its way past midnight so I am off.


Tue, 02/01/2011 - 21:17 | 925913 mark mchugh
mark mchugh's picture

Fair enough.  Many of these people could actually be productive members of a society, but they've chosen to measure their "success" by the size of their paycheck alone.  It hurts their feelings when you remind them that they contribute nothing.

Wed, 02/02/2011 - 00:32 | 926312 DaveyJones
DaveyJones's picture

well said, both posts. These are not men, vermin maybe

Tue, 02/01/2011 - 20:12 | 925746 Bananamerican
Bananamerican's picture

"Targeting tax increases at high earners discourages the most successful elements in society from further productive effort"

in a kleptocracy no one can hear Ayn Rand scream....

Tue, 02/01/2011 - 23:53 | 926241 RockyRacoon
RockyRacoon's picture

So much for their "efforts" so far.

Tue, 02/01/2011 - 20:19 | 925772 Horatio Beanblower
Horatio Beanblower's picture


From AEP at the London Telegraph... "The International Monetary Fund (IMF) has warned that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries." -


Tue, 02/01/2011 - 20:31 | 925799 EconomyPolitics
EconomyPolitics's picture

What is the real problem is the reserves held abroad by other countries.  That money is sitting in a bank reserve in a foreign country and thus is not counted in the money supply. 

What percentage of money is in foreign countries vs. our own and is not counted? 

Think of it this way, if the US lost its place as the reserve currency, then all that money would be again in the money supply and the money supply could increase by a third overnight. 

Wed, 02/02/2011 - 09:08 | 926777 Snidley Whipsnae
Snidley Whipsnae's picture

Bingo! Scrolled down a long way to finally get to a post that mentioned the flood of dollars that would wash up on US shores.

Add more zeros.

Tue, 02/01/2011 - 20:57 | 925862 fearsomepirate
fearsomepirate's picture

Not a bad post...but there are twol things he overlooked:

a)  Increases in either population or available material wealth can put the brakes on inflation even after the money's out the door. 

b)  He's assuming that the government will adopt a deliberately inflationary policy as a means of financing a deficit as a constant share of the country's wealth.  If this happens, yes, it leads to exponential inflation.  But it often doesn't happen.  Inflationary policy in the First World, while destructive, tends to happen in fits and starts, not as a long, sustained, push.  Even less rarely is it adopted as way to fund continuous operating deficits.

Most of what he said is right.  It's just that inflation (properly understood as increasing the money supply artificially) has more complex phenomena associated with it than a simple exponential rise in prices.

Wed, 02/02/2011 - 11:47 | 927387 Flakmeister
Flakmeister's picture

 Regarding point a)  This is exactly how we got to where we are. Read up on the exponential function. Here is another clue and perhaps, a heuristic interpretation

~1 trillion barrels of goo or whatever can be made into oil, 60 trillion of debt. We are reaching the point where the debt is greater than the value of the stuff that is the root of economic growth. Game, Set and Match

Tue, 02/01/2011 - 21:17 | 925911 pimpmysteel
pimpmysteel's picture

everyone needs to go back and watch this 1983 classic starring jane curtin, susan st james, and jessica lange. 


I wish i had more than just the intro. Dont know how I remember this movie, i was 13 at the time. There is a seen in the movie where the U.S. sells California to Japan. really stuck with me. That and Susan St James.

How to Beat the high cost of living.

start @ 18 sec. dont miss @ 2:30

if anybody has any more clips please share.

Tue, 02/01/2011 - 22:27 | 926048 Yen Cross
Yen Cross's picture

Depends on fiscal policy. But the end result is food lines and stagflation.

Tue, 02/01/2011 - 22:31 | 926062 Yen Cross
Yen Cross's picture

Carters Legacy. Iran hostages.

Wed, 02/02/2011 - 00:06 | 926270 Twindrives
Twindrives's picture

Carter's legacy?........voicing his opinions long after anyone wants to hear it.   Go away old man, just go away.   The country won't miss you, we promise.

Wed, 02/02/2011 - 00:43 | 926329 1223pm
1223pm's picture

I don't have a link or proof to back up my claim but a lot I mean a lot of US Dollar bills circulating around the world are counterfeit too. Does that factor is considered in any equation while making calculations?

Wed, 02/02/2011 - 02:17 | 926465 prophet_banker
prophet_banker's picture

i would call it insignificant, cause 97% of the m1 is deposits and not currency....

Wed, 02/02/2011 - 06:00 | 926613 Zero Govt
Zero Govt's picture

We have an imploding economy not an exploding economy. We're in transition stage, trend change, where there's still pockets of inflation from 25 years of credit (debt) expansion. We are about to snap into all-out deflation as property, then banks , then consumers and retail and stocks head toward the toilet. 

You want inflation? You've had it for 25 years, enuf already.

Deflation baby, Deflation

Wed, 02/02/2011 - 09:16 | 926802 Snidley Whipsnae
Snidley Whipsnae's picture

Hyperinflation is often preceeded by deflation.

Weimar attempted to stop deflation by printing more fiat in an economy that was almost entirely fiat cash based. Same in Zimbabwe.

US economy is primarily credit based. Credit card average interest is now ~ 15%. Huge tax on revolving credit and it can be raised to off set any rise in cost push inflation. Slosh of excess cash is drained in the banks favor while cost push inflation is controlled by jacking revolving credit cost.

Anyone consider this?

Wed, 02/02/2011 - 18:13 | 928906 Zero Govt
Zero Govt's picture

yes i'd consider inflation but only once deflation of this 25 year old credit bubble has occurred. Credit (debt) is the problem, not expansion of the money supply. Credit outnumbers money 40/1 (that's conservative). Bernanke has doubled his balance sheet to over $2 Trillion and can double, triple or quadruple it again with no effect, it'll still be a hill of beans compared to the debt mountain.

Wed, 02/02/2011 - 10:17 | 926993 Stuck on Zero
Stuck on Zero's picture

Too many analysts talk about the failed Kenesian policies of the Fed and economic tools out of step with the real world.  At the Fed they are simply looting the national treasury.  It is simply theft of public assets.  No more no less.  No detailed analysis needed.

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