Here’s Why Hyperinflationist Lira Is Wrong

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Wed, 04/06/2011 - 11:33 | 1141118 gorillaonyourback
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petro dollars are coming to an end. i have to guess what i read a few months ago but i think it was less than 50% of contracts were settled in petro dollars. china and Russia almost done with the pipeline from eastern Siberia, Venezuela, Iran take whatever

Wed, 04/06/2011 - 11:26 | 1141063 LivermoreJim
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American poet Robert Frost wrote this:

Fire and Ice

Some say the world will end in fire,
Some say in ice.
From what I've tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.

I don't which which the current financial world will collaspe, but both commentators agree that it will.  Best bet is to be prepared for both.

Wed, 04/06/2011 - 11:22 | 1141032 fredquimby
fredquimby's picture

Do catch up. FOFOA already buried Ackerman over this.

http://fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.html

And Ackerbaby certainly hasn't replied to FOFOA.....as far as i know...

Wed, 04/06/2011 - 11:16 | 1140980 What_Me_Worry
What_Me_Worry's picture

You are 100% correct on the banks not having much cash.  However, in the digital age, we don't have as great of a need for physical FRNs to make purchases.  We have near 100% access to our debit and credit balances.  My banks have been tripping over themselves to increase my credit lines to absurd levels.  I could clear out a grocery store's staple goods just on my plastic.

Anectodal- We had forecasts of a horrible, everyone is going to die, blizzard here a few months ago.  Many stores were getting cleared out of bottled water and other supplies(I'm not sure why you need to stock up on bottled water during a storm of frozen water).  Long story short, people will panic(sometimes irrationally) if the right situation presents itself.  The blizzard was no big deal, of course.

It is rare for me to ever even need to withdraw physical cash.  I have been able to go weeks with not even one physical bill on me and spend money like a drunken sailor.

Hyper-inflation is merely a currency deflating in relation to gold.  The Fed need not ever "print" one more physical dollar for this to occur.  You seem quick to point out that we cannot be another "Weimar", yet cling to the "Weimar" ideal that as long as there aren't houses built out of physical notes that we will not experience any form of hyper-inflation.

Wed, 04/06/2011 - 12:53 | 1141510 Kayman
Kayman's picture

Alfred

Try buying something with cash and find out how negotiable the price is.  Plastic is inflationary.

Wed, 04/06/2011 - 11:14 | 1140979 turkbevi
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I have wrestled with the deflation/hyperinflation debate for several years now and have a question.

 

Since we are now a much more global economy than the Wiemar Republic Days...and that foreigners hold a huge amount of our debt; what happens if and when our creditors decide to start buying our assets with the dollars they hold? How does that affect your thinking? Doesn't that increase the velocity of money/inflation?

Wed, 04/06/2011 - 11:13 | 1140971 idoubtit
idoubtit's picture

Rick is right.

All you hyperinflationists envision pushing a wheelbarrow of money to buy a loaf of bread.  The problem is, nobody has a wheelbarrow of money.  All the Fed is doing right now is bring a harsher dose of deflation on by taking MORE money out of the hands of consumers via commodity prices.  You can see it already starting.  The margin compression occurring in companies that try to raise prices and realize everybody they are selling to is broke.  For fun, let's imagine oil goes up to $200.  What's going to happen?  Are you going to drive a truckload of money to the gas station or are you going to ride your bike to work?  The Fed is only delaying the inevitable.  It's like a credit card company that keeps lowering the interest rate on a borrower to prevent a default until the borrower has borrowed so much that there is no choice but to start writing off debt.

Wed, 04/06/2011 - 11:24 | 1140969 no2foreclosures
no2foreclosures's picture

This "argument" is pretty simple and doesn't need the voluminous words put forth by both Gonzalo or Ackerman (or that ex-Canadian windbag, Nicole “Stoneleigh” Foss of The Automatic Earth).

There is and will be price inflation, maybe even hyperinflation caused by sudden public realization/panic, in certain sectors of the economy depending on which country one is located in, i.e., gold, silver, commodities, retail and wholesale food, gasoline and diesel prices, toilet paper, water, and, basically, in all things that the average person does need to survive and live on, etc.

On the other hand, there is and will be price deflation, maybe even hyperdeflation (remotely), i.e., prices going down to near zero in price and/or worth, in other sectors of the economy depending on which country one is located in, i.e., stocks, bonds, U.S. Treasuries and all forms of corporation and government debt, real estate prices both in residential and commercial sectors, and, basically, in most things that the average person doesn't need to survive and live on, etc.

The one caveat to all of this is that there will be certain things and services that the very rich desire which will maintain and even increase their prices due to the demand from the super rich, i.e., luxury items like super mansions and "toys" like private jets, etc.

Wed, 04/06/2011 - 12:31 | 1141434 SilverBaron
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Well said.

Wed, 04/06/2011 - 12:38 | 1141421 Kayman
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"The one caveat to all of this is that there will be certain things and services that the very rich desire which will maintain and even increase their prices due to the demand from the super rich, i.e., luxury items like super mansions and "toys" like private jets, etc."

I am not so certain conspicuous consumption will be in vogue, when the masses realize they have nothing left to lose.

The fat piggies will be easy to find.

Wed, 04/06/2011 - 11:11 | 1140947 tekhneek
tekhneek's picture

Time will tell which one of you jackasses is right or wrong. Stop writing bullshit like this, please. It lacks substance and just repeats the same stupid opinions regurgitated once over.

Wed, 04/06/2011 - 11:28 | 1141070 Waterman Jim
Waterman Jim's picture

The substance is the debate. your opinion that this is all BS is dully noted.

Wed, 04/06/2011 - 13:17 | 1141659 Imminent Crucible
Imminent Crucible's picture

Lira is "the kind of guy who could wear out a mirror"  --cheap shot, even if it's true.

But this: "Why would the rich and powerful men who control the Federal Reserve, and who would be wiped out by hyperinflation, allow such a thing to happen?"

Can Ackerman really be that stupid?  He thinks that the Warburgs, Rothschilds, Kuhns, Loebs, etc are all stuck with keeping their wealth in US dollars? No, even Ackerman can't be that stupid.

Yo, Rick: You didn't read When Money Dies very carefully.  The wealthy corporate moguls of Germany grew vastly richer off the Weimar hyperinflation; all of them defied the foreign currency controls. In the 2001 Argentine crisis, the Argentine plutocrats converted their pesos to dollars and wired them into Miami banks.  They escaped the peso collapse and grew wealthier off the misery of the middle class.

The super-wealthy family trusts that are behind the Federal Reserve reside mostly in Europe, and they can move their wealth beyond the reach of any government or currency controls in a moment. They won't lose a penny in a dollar collapse; their funds will be shifted into currencies or commodities that will skyrocket as the dollar goes down.

Then, like the kleptocrats of Argentina, they can step in and pick up the assets of Americans at pennies on the dollar.

Lira 1, Ackerman 0

Wed, 04/06/2011 - 16:00 | 1142485 akak
akak's picture

Bravo!

But actually, it is more like:

Lira 1, Ackerman -1

 

To be honest, at this point I am more and more suspicious of anyone who continues to bray about "the threat of deflation".  I increasingly am coming to suspect that anyone who would disingenuously make such outrageous claims, in the face of all historical and logical evidence to the contrary, is merely a shill for the status-quo power structure, and willfully working to spread monetary disinformational smokescreens for the same.

Wed, 04/06/2011 - 11:07 | 1140928 tradewithdave
tradewithdave's picture

This is a great debate. I am an expert on one small aspect. I went to the bank in November to withdraw $9,000.00. The teller got the manager. The manager told me I could have $3,000.00 and in the future she wants a five day notice for "large" cash withdrawals.

I asked "what constitutes 'large'?" She said 'it depends'.

So much for "demand deposits." Don't miss the critique of Ackerman by FOFOA at my site.

Dave Harrison
WWW.tradewithdave.com

Wed, 04/06/2011 - 11:06 | 1140920 riphowardkatz
riphowardkatz's picture

How does deflation or inflation  destroy "vast amounts of real wealth "? Real wealth are cars, houses, buildings, machines, productive human knowledge, bicycles, gold, silver, copper, mines, farms, oil wells, land, ships airplanes, hospitals.  Learn what wealth is and is not. So you can get a clue wealth is not stock certificates, US government bonds, MBS, CDOs, printed pieces of paper with dead presidents and so on. 

Did you really site a book from 1976 calling for deflation? Holly smokes we are getting close to the Keynesian "in the long run we are all dead" Keep holding your breath Rickardo, maybe it will make you condense some of your long windedness down.


 


Wed, 04/06/2011 - 11:03 | 1140879 batting500
batting500's picture

I believe we will see inflation, this article does a GREAT job of showing another arguement.  Thank you for posting it.

 

Good Luck to All...

Wed, 04/06/2011 - 11:00 | 1140862 lynnybee
lynnybee's picture

....this was a great article & i loved the comments ~~ i read them all & learned a lot !!

Wed, 04/06/2011 - 10:57 | 1140854 web bot
web bot's picture

You are flawed in one very important area of your thinking. You believe that the Fed won't allow hyperinflation. You "presume" that they can "stop" it from happening.

Once hyperinflation begins you just can't stop it. All we need is one more major financial collapse (or collapse of the US dollar) and this will result in QE liquidity to slosh around the globe seeking yield in anything that can hold relative value... which means you have velocity of money occurring... skyrocketing prices, the destruction of the standard of living... and you have hyperinflation.

Looking at wage increases, the lens that the Fed is looking won't signal the onset of hyperinflation. Lira is right on.

Wed, 04/06/2011 - 10:54 | 1140835 centerline
centerline's picture

Overall, deflation is going to win.  Hyperinflation is a distinct possibily though... but as a waypoint along the way to the ultimate deflation.  Likely a short-lived episode versus the deflationary experience that is coming.  The scapegoats for it will not be the Fed though.  It will be the people and politicians.  And it will be played as an unforeseen consequence - of course!

The Fed is just a part of the effect here - so are the banks.  They can be dismantled as needed and rebuilt again elsewhere.  Thier sucess or failure should not part of the criteria in looking at where we are going.  The same can be said for governments.  The money and power at play here has no allegiance.  It is more primal than that - and planned/executed on much longer timeframes than we typically consider.  At shorter time intervals, there simply is too much chaos and unpredictability.

Anyhow, many authors that make excellent arguments.  And it takes brass to put those arguments out here for all the read (and attack).  Give it time, and I think we will see more of a "unified theory" start to emerge.  And of course, for peasants like myself, knowing the overall direction is one thing... knowing what the path looks like is another.

 

Wed, 04/06/2011 - 10:52 | 1140834 Atomizer
Atomizer's picture

Rick, would you mind commenting on these graphs?

1) http://www.schillerinstitute.org/graphics/diagrams/TripleCurve.jpg

2) http://img88.imageshack.us/i/economiccycleen.jpg/

My two cents.. high unemployment = low productivity. Bernank will have to raise interest rates, which will trigger new strains in housing market.

Wed, 04/06/2011 - 10:51 | 1140829 Nout Wellink
Nout Wellink's picture

Funny you mention Fergusson's book. At the end of the "Note to the 2010 Edition" Fergusson states: 

"People's trust in their currency is here a central theme. As it evaporates, they SPEND FASTER, the velocity of circulation increases, a little money does the work of much, prices take off, and more money is needed." 

Ouch, that completely destroys your arguments you made here.

Wed, 04/06/2011 - 11:17 | 1140983 Printfaster
Printfaster's picture

Bingo.  Check the Weimar fetzen.  They were stuck in a cycle where the value of money kept going down, so velocity had to compensate for the loss in value. 

Take a look at the world wide currency store, and compare it to the value of that store in gold, or oil for that matter.  I would bet that we are seeing worldwide inflation of a rate that begs for velocity.

It is a lot harder to see velocity increases in money today because of the electronic nature of transactions.  I sometimes wonder at the rate a dollar courses through the system in one day.

Wed, 04/06/2011 - 10:48 | 1140796 Internet Tough Guy
Internet Tough Guy's picture

FOFOA already destroyed this argument.

Wed, 04/06/2011 - 10:54 | 1140847 rickack
rickack's picture

Yeah, sure.

Wed, 04/06/2011 - 11:22 | 1141036 Internet Tough Guy
Internet Tough Guy's picture

You and Lira deserve each other. Two arrogant goofs in a pissing contest. I'll stick with FOFOA; good luck betting on deflation.

Wed, 04/06/2011 - 12:45 | 1141483 tpberg7
tpberg7's picture

Excellent point Tough Guy!

Wed, 04/06/2011 - 12:03 | 1141289 DoChenRollingBearing
DoChenRollingBearing's picture

I'm with FOFOA too.

But, it seems like a good idea to me to have 6 months worth of FRNs on hand in case we do get deflation.  Bearings are not good at predicting the future.

Cash and (lots of) gold.  Diversification.

Wed, 04/06/2011 - 10:46 | 1140785 Jack Sheet
Jack Sheet's picture

Sheeit, please, not another "inflation/deflation/hyperinflation piece". The debate has become completely academic and semantic. The terms should be eliminated and replaced with something else. The only issue is how to maintain your standard of living and the value of your assets.

Wed, 04/06/2011 - 10:44 | 1140778 LowProfile
LowProfile's picture

Rick:  Hyperinflation is a POLITICAL event, not a monetary one.

Wed, 04/06/2011 - 10:54 | 1140844 rickack
rickack's picture

Politicians and the rabble don't control the money supply; the Masters of the Universe do.

Thu, 04/07/2011 - 12:14 | 1145590 GoinFawr
GoinFawr's picture

So then ask yourself: who wins/loses the most in a deflationary collapse? Who wins/loses the most in a hyperinflationary event?

Wed, 04/06/2011 - 10:45 | 1140775 lookma
lookma's picture

Visca el FOFOA !!!

Wed, 04/06/2011 - 10:42 | 1140751 Nout Wellink
Nout Wellink's picture

FOFOA has already countered the flawed arguments of Ackerman:

http://fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.html

Indeed: it is the demand side that Bernanke has no power over. If we decide the dollar is worthless, it is. Instantly.

Wed, 04/06/2011 - 10:53 | 1140837 rickack
rickack's picture

True enough.  But there remains that small matter of who will decide whether the house on which you put 5% down is still "worth" $400,000.

Wed, 04/06/2011 - 11:00 | 1140872 SilverBaron
SilverBaron's picture

The same people who are allowing mark to model instead of mark to market.

Wed, 04/06/2011 - 13:23 | 1141485 GoinFawr
GoinFawr's picture

Another one of the crucial points Ricky fails to address SB. I am a bit surprised that I have had to scroll this far down the thread to see it brought up...

Even MISH recognizes this as the onion in the USD deflationists ointment.

"...Thus my model suggests 2007 to February 2009 were periods of deflation, March 2009 to May 2010 were periods of inflation, and now we are likely back in deflation but it is hard to say given institutions do not mark assets to market. Extend and pretend is massive." - Mike Shedlock

http://www.zerohedge.com/article/chris-martenson-interviews-mike-shedlock-discusses-deflation-fed-gold-and-other-subjects

Regards

Wed, 04/06/2011 - 10:35 | 1140703 Hot Piece of Bass
Hot Piece of Bass's picture

Can I submit a request for the top moustaches of economic thought?

Given the widespread use of credit as money on the road that got us here... the evaporation of said credit seems to be an obvious deflationary force.  But I rarely read anything on how much credit has/had taken the place of paper money in so many transactions. Thus... even though the Fed did not print vast loads of money during the mid 2000's, the mass expansion of credit by the banking sector during those times could be seen as inflationary.

Given the proliferation of so many purchases on credit, I would think it should have some role to play in any argument involving deflation and inflation.

Just a thought.

 

Wed, 04/06/2011 - 10:35 | 1140692 franzpick
franzpick's picture

Friend's daughter/SIL have defaulted (2 years ago) on 2 investment homes, as well as on their own re-fi'd at the top and heloc'd residence (last year):  total loans $1.2 Mil.

During these 2 years, the banks have been claiming the defaulted payments as income, continuing drawing their salary bonuses, and the borrowers fico has come partway back toward a qualifying level in 2-3 more years.

Amazing to me that both the borrowers and lenders are going to be 'jubileed' on these losses, but won't such losses surface eventually in another way ?  Like bank, mortgage lending or virtual home price collapse ?

Wed, 04/06/2011 - 10:38 | 1140717 Teaser
Teaser's picture

jubilee or no jubilee, what we're talking about is a transfer of wealth from the savers to the spenders.  The argument we're having is how much the savers lose vs how much the spenders lose.  Right now, the savers are getting their butts kicked.  And Ben is a spender.  So is Congress.  They have the power and make the rules.  The end game is simple to see politcially.  The spenders will take everything the savers have and everything they make, until such time as the savers decide to kill all the spenders.  I am afraid that that time is coming soon.

Wed, 04/06/2011 - 12:07 | 1141302 Kayman
Kayman's picture

"The spenders will take everything the savers have and everything they make, until such time as the savers decide to kill all the spenders.  I am afraid that that time is coming soon."

What amazes me, is how large a disconnect there is between the government propaganda (thru the MSM) and what is actually happening on the ground.  I see desperation everywhere- good people on their last legs.

Wed, 04/06/2011 - 10:57 | 1140858 SilverBaron
SilverBaron's picture

+1

Revolution or WW3 are the most likely outcomes.  Americans will not sit by and starve without attempting to take what they need.  It's hard to make slaves out of armed people.

Wed, 04/06/2011 - 10:49 | 1140799 QQQBall
QQQBall's picture

yes, from the prudent to the reckless

Wed, 04/06/2011 - 10:31 | 1140677 Magnum
Magnum's picture

I was in Vietnam in 1992, and at that time in order to pay for a meal you had to carry around, literally, a paper bag full of money.  Pockets were not big enough.  Then, after you got the bill, it took a good 5 minutes to count what you owed.

It's neat that you are so enamored with the work of Mr Myers but some realworld experience begs the question--why are we so special that the "bags of money to pay for dinner" scenario won't play out here?

Wed, 04/06/2011 - 10:39 | 1140736 LawsofPhysics
LawsofPhysics's picture

Because unlike Vietnam, there won't be any food or water to buy.  Our creditors will be buying it all.  Hhmmm, perhaps commodity inflation isn't so bad after all.  Might fix that trade deficit.

Wed, 04/06/2011 - 10:31 | 1140664 Bub Ba
Bub Ba's picture

Rick, even for you, that was a nasty rant.

Wed, 04/06/2011 - 10:50 | 1140824 rickack
rickack's picture

How well you know me!

Wed, 04/06/2011 - 10:31 | 1140663 False Capital
False Capital's picture

Why the stark choice of deflation vs. hyperinflation? There are myriad other alternatives. Personally, I'm leaning towards deflation when measured in gold. It is possible we will see the complete repudiation of the FRN and replacement with another currency (e.g. SDR's or the US dollar (as originally defined in weight of gold / silver). Hyperinflation is not necessary if an exchange rate is defined. Just a one-off massive loss in purchasing power.

Wed, 04/06/2011 - 10:27 | 1140651 Bullionaire
Bullionaire's picture

Ackerman = Nadler.

Wed, 04/06/2011 - 10:51 | 1140817 rickack
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Come over to my web site and try that one, B.

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