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Welcome To Hyperinflation Hell: Following Currency Devaluation, Belarus Economy Implodes, Sets Blueprint For Developed World Future

Tyler Durden's picture


"A ‘91-style meltdown is almost inevitable." So says Alexei Moiseev, chief economist at VTB Capital, the investment-banking arm of Russia’s second-largest lender, discussing the imminent economic catastrophe that is sure to engulf Belarus following the surprise devaluation of the country's currency by over 50%, which we announced on Monday. "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production
" Moiseev concludes. Ah: "privatization" as Greece is about to learn, the lovely word that describes a fire sale of assets to one's creditors, courtesy of a "globalized" new world order. Ironically, this is precisely the warning that will be lobbed at each country in the developed world, as the global race to devalue currencies, first against each other on a relative basis, and ultimately against hard currencies, or on an absolute basis, as the world realizes that there simply is not enough cash flow to cover the interest payments on a debt load, in both the public and private sectors, that continues to rise at an astronomic rate, even as the world prepares to exit from the latest transitory, centrally-planned bounce in the Great Financial Crisis-cum-Depression that started in earnest in 2007 and has been progressing ever since. Ultimately, Belarus will succumb to hyperinflation, as will each and every other government seeking to devalue its currency (hint: all of them): "Unless Belarus heeds Russia’s call for mass privatization
of state assets, it is headed for “hyperinflation, massive un-
and under-employment, and a shutdown of production
,” VTB’s
Moiseev said. The ruble will slide to 10,000 per dollar, he
added." Of course, this is the primary side effect of attempting to avoid formal bankruptcy through currency devaluation. And all those who continue to believe deflation is an outcome that will be allowed by the Fed, need to look just to the former Soviet satellite to see what lies in store for everyone currently doing all in their power to devalue their currency.

First look at the Belarus Ruble chart below: this is what always happens to every country that resolutely continues to live outside its means. Always.

And here are some additional observations from Bloomberg on the country that everyone in the media continues to ignore, yet which will very soon be the model for virtually everyone else engaging in central planning warfare.

The Belarusian central bank let the managed ruble weaken by 36 percent versus the dollar on May 24 as demand for dollars and euros from importers and households threatened to derail an economy already laboring under a current-account deficit equal to 16 percent of gross domestic product. Russia and other former Soviet partners last week agreed to give Belarus a $3 billion loan and urged President Aleksandr Lukashenko’s government to sell $7.5 billion of assets to replenish the state’s coffers.

Finance ministers from former Soviet nations agreed in Minsk on May 19 to give Belarus up to $3.5 billion over three years, with the first $800 million payment expected in the week after a separate meeting on June 4, Russian Finance Minister Alexei Kudrin said in Moscow yesterday.

The Nationalnyi Bank Respubliki Belarus set its official dollar-ruble rate at 4,931 for today’s trading, from 3,155 on May 23, according to its web site. Trading of foreign currency between companies, banks and individuals needs to stay within a 2 percent range of the daily rate, the regulator said May 23, when it announced the devaluation and reintroduced restrictions lifted on the interbank market on April 19 and for households on May 11.

Devaluing the currency will only worsen the situation for Belarus, VTB’s Moiseev said.

“The main problem is that the economy produces goods which consist of little else than a combination of imported spare parts,” he said. “So devaluation only makes things worse.”

Belarus’s economy effectively collapsed in 1991 as the disintegration of the Soviet Union eliminated natural markets for the country’s exports of farm machinery, textiles and agricultural products.

The catalyst for the country's imploding economy: socialism and price controls. Sound familiar?

Lukashenko reintroduced controls on prices and the currency and re-nationalized some companies and infrastructure after coming to power in July, 1994, on a platform of “market socialism.” The nation’s economy returned to growth in 1996, according to World Bank data.

At the Minsk Refrigerator Plant Co. shop in the capital today, about 20 people queued in drizzling rain to use their rubles to buy fridges. While the shop didn’t open on the day of the devaluation, most of the models in the store already had ‘Sold Out’ stickers on their doors.

“I came on Saturday and it was a nightmare, the store was stormed by people who wanted to spend their rubles because of rumors about the devaluation,” said Nikolay, a 74-year-old pensioner who declined to provide his last name. His entire savings of 6 million rubles now buy one fridge compared with three before the devaluation, he said.

The people are not happy...

The devaluation lifted the local price of automobile fuels as much as 24 percent, according to Belneftekhim, an industry group for the country’s oil sector. Last night, about 50 people protested the price increase in the car park of a Minsk hypermarket.

“I can’t describe how I feel without using obscenities, this is all our government’s fault,” said Sergey, a 32-year old attending the protest who works for a computer importer. “The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”

Who can blame the country if it devolves into civil war: as a result of Monday's decision the average salary was "1.6 million rubles
in April, according to the government statistician. Converted
into dollars, it fell to $325 after the May 24 devaluation, from
$507 a day earlier, using central bank exchange rates."

Naturally, the IMF wuz here:

Both the IMF and the EBRD have blamed Lukashenko’s spending before last year’s presidential election for much of the economy’s woes. Lending was increased by 38 percent last year and public-sector salaries rose by about 50 percent, the Washington-based IMF said in a March 9 report.

Belarus got a $3.5 billion bailout loan from the IMF during the global credit crisis and the country has more than $2 billion of ruble and dollar debt outstanding. Foreign-currency reserves hit a 1 1/2-year low in March.

“The ruble is probably still too strong, but devaluation hurts the average consumer through imported inflation and deteriorating purchasing power,” Sanna Kurronen, an economist in Helsinki at Danske Bank A/S, said by e-mail yesterday. “There is really no easy way out of this economic distress and the only way is to do a major reform in the country.”

Here comes hyperinflation...

The price of children’s diapers has “gone completely insane” in Minsk, said Natalia, a 24-year-old mother also queuing outside the refrigerator store. “I used to buy a pack for 69,000 rubles, now they cost 140,000,” or almost half the 343,260-ruble monthly child benefit paid by the government, she said.

“We have become paupers,” said Tatiana, a 70-year-old woman in the line who also declined to give her last name. “We have been squeezed into a corner by this devaluation.”

Belarus’s dollar debt has been buoyed by news of the Russian loan, with the yield on the government’s debt due 2015 dropping four basis points to 9.881 percent by 6:35 p.m. in Minsk, the lowest since March 14. Dollar-denominated notes due 2018 yielded 10.38 percent, down six basis points.

The country has raised its refinancing rate twice since April 20 to 14 percent, the highest in Europe. The central bank also stopped selling foreign currency out of its reserves in March and will continue to stay out of currency markets, spokesman Anatoly Drozdov said by phone in Minsk yesterday.

...And following that, complete socio-economic collapse

Unless Belarus heeds Russia’s call for mass privatization of state assets, it is headed for “hyperinflation, massive un- and under-employment, and a shutdown of production,” VTB’s Moiseev said. The ruble will slide to 10,000 per dollar, he added.

Unemployment was 0.7 percent in December, according to government data. Inflation accelerated to 14 percent in March, the fastest since April 2009 and more than neighboring Russia’s 9.6 percent in April. Imports into Belarus exceeded exports by $7.3 billion at the end of 2009, according to the latest annual data available.

Russian media are creating a “flurry” of speculation about the nation’s asset sales so they can “make good at our expense,” Lukashenko said today in Astana, the capital of Kazakhstan, according to comments reported by state news agency Belta. “But we will not throw anything to anybody for nothing.”

Note the parallels to Greece, which would follow the same fate if it were to make the choice of returning to the drachma.

Alas, there is nothing left to add: this is the future, and it is coming to a developed country near you.


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Wed, 05/25/2011 - 17:25 | 1310462 mynhair
mynhair's picture

Sweet.  Coming soon to a terminal near you.

Wed, 05/25/2011 - 17:28 | 1310479 Jeff Lebowski
Jeff Lebowski's picture

“The whole world tells them, guys, you have economic problems, you should do something, and all they did was live off getting more and more loans.”

Coming soon is right....

Wed, 05/25/2011 - 18:22 | 1310622 TruthInSunshine
TruthInSunshine's picture

We're going to have a deflationary collapse, before there's any possibility of hyperinflation.

I have been too reserved on this subject in my demeanor. I like Gonzalo Lira, but he's effing insane with respect to his hyperinflation bullshit.

All the hyperinflationists fail to give much, let alone quality, analysis to debt destruction, which is the same as money/fiat destruction, when presenting their cases and models for inflation.

We know the that excess reserves, which is really what Ben 'Bananas & Bubbles' Bernank has created (aside from a really shitty Federal Reserve Balance Sheet, steeped deep in toxic MBS and soon to be worth far less treasuries), do not equate to a inflationary input, and can and will be drained (however painfully and slowly, ultimately).

We know there are vast sums that still have yet to be delevered or otherwise dealt with, in the form of rotten assets, laying in sky hgh piles, all over the balance sheets of banks and financials, which have been literally marked to fantasy for going on 3 years now, that very well may present yet another global systemic threat to capital markets, even making that which occurred in 2008 look mild by comparison (reference Eurozone now, and the U.S. and China in the coming years).

ZIRP is the reason for the surge in commodities and other speculative asset classes as of late, more than any other causal force put into motion by the Fed.

Presenting a case for hyperinflation in the 'developed world' beginning with events in Belarus is painful to read.

This is Fight Club. F*ck this hyperinflation bullshit claim that's been made.

Hyperinflationists can join Harold Camping now, and adjust their time tables, again.

We have stagflation and we're going to suffer it for some time. But it's ultimately going to transition into deflation again.

Those of you claiming the Fed and other Central Banks "won't allow deflation" don't comprehend that the route to stopping it at this point would be the more hazardous one, at this point.

The Fed's only tool is ZIRP at this point, and ZIRP is doing nothing but creating speculative bubbles.

QE is dead with a Do Not Resuscitate advanced directive. QE failed. Everyone knows it.

QE will be viewed with derision and scorn even among the most steadfast Keynesians in years to come (that attitude has already begun taking shape amongst their ranks - Krugman does not view QE as even roughly equivalent to stimulus measures similar to those enacted with the goal of [however inefficient and costly] job creation).

Wed, 05/25/2011 - 18:27 | 1310663 akak
akak's picture

TiS, I have often agreed with you before, but I cannot agree with you here.

The simple, undeniable fact is that there is nothing --- NOTHING --- in all the sordid, thousands of years of monetary history to support the absurd thesis of deflation under a fiat currency regime.  But, there are literally HUNDREDS of examples of the opposite --- currency debasement and collapse --- happening under those same fiat currency regimes, particularly, and ALWAYS, when the governments exercising the monetary monopoly under those regimes went into chronic overspending and unsustainable debt, as all Western nations are doing today.

So tell us again, why is this time different?

PS: Bankruptcy NEVER leads to one's credit rating rising, or one's IOUs becoming more valuable than they were before.

Wed, 05/25/2011 - 18:33 | 1310681 DK Delta
DK Delta's picture

What are you talking about? Look at Japan. It's currency is backed by more debt, and it has been deflating for the past 25 years.

Wed, 05/25/2011 - 18:32 | 1310689 EscapeKey
EscapeKey's picture

The savers of Japan have bought nearly all issued debt, whereas the American issues were financed through the printing press. Big difference.

Besides, the Japanese game is nearly up.

Wed, 05/25/2011 - 18:41 | 1310721 nope-1004
nope-1004's picture

Have to agree with akak.  Sorry TIS.

Deflation is for sure here, but the banksters won't let it materialize.  Benocide is doing everything he can to stave off deflation.  The big boyz, who lent out trillions in toxic shit, would crumble overnight if deflation took hold.  Won't happen.  Inflation is the bankstas grip on the masses, and it is policy #1.

Deflation means people walk away from their financial obligations, as price deterioration makes the asset worth less and selling it completely unmarketable.  If people walk, banks take the biggest hit, as they are the lenders on all that shit. 

Your points are clear and make sense, only if you assume TPTB are going to act rational.  They won't.  They're into confiscation and hyperinflationary write offs.  They're all acquiring PM's in anticipation of this event.  Deflation would bring power back to the people, and they won't let that happen.


Wed, 05/25/2011 - 19:04 | 1310797 grekko
grekko's picture

This time infaltion is coming at us a different way.  All gov't stats are total lies...CPI, unemployment, etc.  During the 70's, paychecks went up as inflation went up (not by the same % though, so we lost, but not as bad).  Today, we are losers, big time.  I've been trying to buy as much silver and gold (prohibitively expensive on my paycheck), but the family needs to eat as well, so it's only a pittance here and there that I can accumulate.  As far as I can see, within the next couple of years, the shooting is gonna start.  I'm not violent by any means, like this body was built for comfort, but I feel the mood of the country this recession/depressiion.  I'm going to tend the garden and keep my head low.  Anyone got a better idea to add to my list?

Wed, 05/25/2011 - 22:28 | 1311546 TruthInSunshine
TruthInSunshine's picture

Hyperinflation is literally prices on basic goods doubling or tripling in a matter of months or even days.

If anyone believes that the U.S. Government can survive, or that the global economy can survive (the United States is still the largest single consuming sovereign in the world by a wide margin - we consume nearly as much as the entire Eurozone nations do, collectively, and many of those nations are net exporters), while hyperinflation takes root in the U.S., they're high on crack.

The only way hyperinflation can possibly occur in the U.S. is if the global economy suffers a deflationary collapse first, and the political and military order of nations is revamped in such a dramatic manner, that up is down and down is up.

For those thinking this is really possible, or likely, having a year's worth of provisions is going to be the least of your concerns if you're estimations bear fruit.

What we're going to see, most likely, is a reversion to the mean of the slow drip of mean clustered inflation, but with the nasty changeup of wages not at least keeping up with the slow drip; in other words, a slow devaluation of living standards, in an effort to keep the frogs from jumping out of the pot because the water feels too uncomfortably hot (let alone the frogs rising up with firearms and torches).

However, do not discount that the universe and world are complex environments, and there is much that is not able to be even remotely contemplated at present.

Austerity measures - given enough time and political recalibrations (again, over a long enough time frame) - may indeed be in store for the U.S., and budget recalibration of a positive kind may be in the offing, especially if external events in other parts of the world create an opening.

Things are fluid, dynamic, and highly unpredictable.

Wed, 05/25/2011 - 22:52 | 1311618 disabledvet
disabledvet's picture

first off "when i think of frogs i think of sex."  All seriousness aside however--a special set of circumstances must occur in order for a hyper-inflation to take hold.  we're missing the most important component:  "we must repay our debt but can't print our way out of it." i think a better example in what we are going through is what France went through during Napoleon.  There are so many interested parties in our "Guns and Roses" economy..."it's hard to know who to shoot first."  Healthcare?  The Post Office?  Either way "the hundred years war continues"--and we all know how that ended.  "But it took a hundred years"--so we shouldn't forget that, either.

Thu, 05/26/2011 - 01:25 | 1312083 Ahmeexnal
Ahmeexnal's picture

Prices on many daily items may have already doubled without the sheeple actually noticing it.

Can you say smaller food rations at somewhat higher prices?

Thu, 05/26/2011 - 06:51 | 1312377 nmewn
nmewn's picture

This is absolutely true.

All you have to do is look at the size of your roll of paper towels in the kitchen, shampoo bottle in your bathroom etc...its been going on for a year or more.

You are paying the same or more for less product...oh for the days of a 5lb. bag of sugar ;-)

Wed, 05/25/2011 - 22:57 | 1311637 Calmyourself
Calmyourself's picture

I also quietly agree with much you have said in the past but you seem to be framing your argument against hyperinflation as a monetary regime and phenomenon. Sooner or later (probably later) the propaganda machine will break down and a true hyperinflation will begin somewhere in the world, Belarus perhaps.. This will be like wildfire and if not spun properly and quickly by the corporate media it will endanger all fiat.

It is a cliff and once one lemming goes over it others will understand very quickly their money is paper but goods are physical and sellers will feel their power and then hold on.. This is an idea, a psychological happening and predicting its start is very difficult it may never happen but history argues against our avoidance of our fate.

Wed, 05/25/2011 - 22:59 | 1311649 tarsubil
tarsubil's picture

I like your last comment. Can anyone predict hyperinflation, stagflation, or deflation with confidence when the system is so fragile and prone to a disaster or the arbitrary whims of the elites? How the fuck do you hedge for all three possibilities?

Thu, 05/26/2011 - 01:27 | 1312087 pavman
pavman's picture

Yes.  Look at it like this...let QEx run its course while all the businesses go cash positive big time.  Then pull QEx and none of the drivers of the 'economy' need to borrow money ...what happens?  Cash becomes king and pricks like me go on field trips for bargain basement assets.  Everything crashes, but guess what.... you got cash, you're g2g!  So who gets hurt?  The big guys? Nah.  Mom and pop?  Only if they don't have savings.  But heck, even then if they have a job all of a sudden everything gets cheaper!

That's the reality.  When you have the guys with big guns holding huge wads of cash, they're gonna want to buy bargains.  That's not gonna happen very much if [hyper]inflation sets in.  Of course, some are hedging in China and shifting currencies, but the big money players are swimming in cash now.

So... if you want solid growth pull the plug on QEx, let the dollar deflate and watch the multi-nationals go out on an international shopping spree!

Wed, 05/25/2011 - 20:42 | 1311141 A Nanny Moose
A Nanny Moose's picture

Agree. 2008 was my lesson in TPTB's approach to deflation. Right off that v-bottom.


Edit: To add. It seems we are seeing deflation right now, in the bubble assests...Real Estate. Stocks soon.

Thu, 05/26/2011 - 01:30 | 1312086 tiger7905
tiger7905's picture

Great Rob McEwen interview. His perspectives on Europe and bailouts, real estate as well as gold and silver of course.

Wed, 05/25/2011 - 21:43 | 1311378 Ricky Bobby
Ricky Bobby's picture


Nope- your arguments make sense to me.

Wed, 05/25/2011 - 18:39 | 1310697 akak
akak's picture

No, you are buying into the perverted vocabulary of the Keynesians if you believe that.

Japan has NOT been experiencing deflation of any sort, and that is utter bullshit to even suggest!  The collapse of an asset bubble (or several asset bubbles, as the case may be) is NOT synonymous with "deflation"!  Has their money supply fallen in the last 20+ years?  Has the cost of living for the average Japanese citizen fallen during the same period?  Does the yen have a higher purchasing power, domestically or internationally, than it had in 1989?  No, no and no.

Wed, 05/25/2011 - 18:43 | 1310738 DK Delta
DK Delta's picture

Keynesians look at consumer prices, not monetary aggregates so how am I buying into Keynesian bullshit?


How do you define money supply??? If you are looking at base money then sure, the BOJ is pissing cash, but if you look at broader monetary aggregates that take into account credit, then you see a DEFLATION. 

If you borrowed money to buy silver on margin and then were forced to sell that silver because of margin calls, is that not a deflationary event? Are you under the impression that the largest driver of prices in an economy is money? No, its credit. 

You have to look at all the prices in an economy, not just the price of a consumer goods. If you look at things in this manner then you will see that japan has been deflating for two decades.

Wed, 05/25/2011 - 18:56 | 1310773 Spalding_Smailes
Spalding_Smailes's picture

Yup ... And always a thirst for that dirty little dollar ...


Reliance Industries Ltd. (RIL)India’s largest company by market value, is in talks with banks to arrange as much as $1.5 billion in dollar-denominated loans, according to two people familiar with the matter.

Reliance, controlled by billionaire Mukesh Ambani, plans to borrow $1.1 billion in five-year loans to replace debt maturing in about two years that has higher interest costs, the people said, not wishing to be identified because the terms aren’t set. The company may obtain another $400 million of new loans, the people said.

Thu, 05/26/2011 - 00:18 | 1311938 Robot Traders Mom
Robot Traders Mom's picture

Why wouldn't they want a dollar-denominated loan? That $1.5b will be a lot easier for them to pay off as the dollar is devalued...#trolling

Wed, 05/25/2011 - 19:43 | 1310941 Texas Gunslinger
Texas Gunslinger's picture

Akak is the dumbest window licker on the short bus.

Any attempts to teach him about deflation is a bit like having a knife fight with a hemophiliac. 


Wed, 05/25/2011 - 20:10 | 1311043 akak
akak's picture

Go away, RedNeck Repugnifuck --- nobody called you, or wants you here.

Wed, 05/25/2011 - 22:03 | 1311463 Absinthe Minded
Absinthe Minded's picture

With you Akak, this scum slinger is getting tiresome. Here is an idea. Why don't you go some place else and piss off. This blog is full of too many well intentioned people giving voice to their inner most thoughts, worries and theories. You must be lonely for you to have to troll here.

Thu, 05/26/2011 - 00:19 | 1311953 DoChenRollingBearing
DoChenRollingBearing's picture

akak, Absinthe, (Hulk, dumpster, Mr Lennon, Turd, Instant K, JW in FL, Colonel_Cooper, etc., all who have been kind to the lowly Bearing). Email me (gmail) if you would like a link to my new little blog. Above at gmail. Pls try to prove who you say you are (I write my real name, so..., I do not want my name trashed all over the 'Net) Some 20 ZH-ers have joined up. I keep this kind of secretive ONLY at ZH. Everyone on my personal and email list and Facebook account is aware of my little blog. My last article is on GOLD! I am HAPPY with my responces minus a couple of ZH bullies, see CogDis's EXCELLENT article above at the top at 12.24 AM ET.

Wed, 05/25/2011 - 22:27 | 1311542 jdrose1985
jdrose1985's picture

I remember the time Bruce Krastig schooled you on the Yen.

You must have forgot...I didn't.

Wed, 05/25/2011 - 22:48 | 1311616 akak
akak's picture

Jdrose, are you replying to me?

If so, I have no clue to what you might be referring.

Wed, 05/25/2011 - 22:59 | 1311627 disabledvet
disabledvet's picture

i don't know.  "window licker on the short bus" is a new one.  was he referencing anything in particular when he said it?  perhaps we need a button for "flag as original insult" in addition to the "i hate you button."

Wed, 05/25/2011 - 23:14 | 1311701 Calmyourself
Calmyourself's picture

Thu, 05/26/2011 - 00:33 | 1311975 parangwarrior
parangwarrior's picture

man dont leave.. i like your style, licker on the short bus, wow

are you a cowboy? ehhmm

we could hangout together ya know..

i have a big ranch wit lotsa horses and dogs and pussie cats..

you like popcorns, how bout movies.. wanna watch brokeback mountain..

i like cowboy hats and jeans.. u? ;)


Thu, 05/26/2011 - 02:04 | 1312158 Fiat2Zero
Fiat2Zero's picture

Tex tex are such a sad little fuck.

The fact is that Akak has some very cogent and well presented counterpoints (complete with facts I might add) to the specious bogeyman of DEFLATION.

This is the tell, you lousy, sad sack of replicant shit. You paid shill.

To go full metal on someone who is absolutely destroying the deflation argument with some very simple "but hey, the emporer has no clothes" observations, is to show that your perverse Rothschild masters have singled him out as a threat. Also it's really bad form old sport.

I liked you better as RoboTrader - at least you were fun to make sport of. The whole sock puppet brigade complex is collapsing under it's own weight.

You'd better retaliate to this post because I think your PayPal debit is not going to come this period. The Rothschild Masters will be furious by your sad, sad fuck up.

Tell daddy warbucks Rothschild that we have his number, and we're coming to skull fuck him.

Thu, 05/26/2011 - 02:06 | 1312160 Fiat2Zero
Fiat2Zero's picture

Sorry, after that missive CD wrote today about being nice to other people, I need to rephrase:

PLEASE tell daddy warbucks Rothschild that we are coming to skull fuck him.

There, that felt much better.

Thu, 05/26/2011 - 02:17 | 1312169 akak
akak's picture

You are more of a gentleman here today than I, F2Z.  Thank you for your moral support.

However, Tex is nothing more to me here than a momentarily irritating mosquito buzzing in my ear, and just as easily shoo'ed away --- or swatted.

Thu, 05/26/2011 - 07:26 | 1312430 asymptote
asymptote's picture

I've been a lurker for a long time(2008, and reading multiple times every day for the past year). So hello all.

I am curious about your comment about reducing credit. I'm with you that credit drives prices for just about everything. However, I'm not sure that I agree that refraining from using credit naturally leads to deflation that disproves HI. I personally believe that the argument between deflation and hyperinflation is orthogonal.  HI is rejection in the belief that the currency is a store of wealth, and increasingly as a medium of exchange as it progresses. Obtaining credit is an admission on the part of the person obtaining it, that they believe they can not only return the principal, but also the interest. So credit use (to me) denotes 'betters times are ahead', as you need more cash in the future to repay today's debt.

Choosing not to take credit, (again to me) is a distrust in future conditions, i.e capacity to repay the debt. This sounds like the kind of mindset that currency rejection comes from.

As I understand Hyperinflation, the increasing prices come from owners of real assets rejecting the 'worthless currency' until they have enough buffer in the accepted price for them to spend it without losing value, which is where the 'big numbers' come from. So to me the psychology of not trusting the future of the currency is key. 

I found this article enlightening to help separate me from the correlation between inflation and hyperinflation:





Wed, 05/25/2011 - 18:48 | 1310745 WonderDawg
WonderDawg's picture

Dude, you confuse the fiatness of the money system with the fractional reserveness of the monetary system. It's the fractional reserve lending that "creates" money, and is responsible for the crisis we are experiencing now, and will ultimately lead to deflation, because money (credit, debt, whatever) is being destroyed and will continue to be destroyed as more debt is defaulted.

Now that we have that cleared up, can you think of any periods of deflation under a fractional reserve banking system? Does the Great Depression ring a bell? There are many other examples of deflation under fractional reserve systems, do some research and education yourself.

You know just enough to be dangerous.

Wed, 05/25/2011 - 18:50 | 1310752 DK Delta
DK Delta's picture

"You know just enough to be dangerous."


Wed, 05/25/2011 - 20:42 | 1311156 Eternal Student
Eternal Student's picture

Ditto and +1 to WonderDawg.

Wed, 05/25/2011 - 21:31 | 1311313 Bay of Pigs
Bay of Pigs's picture

And what about the legion of deflationists who have had it completely wrong on gold and silver for over a decade now?

Pardon me if I have any of you confused with some other sad sack deflationist like Prechter.

Wed, 05/25/2011 - 21:29 | 1311335 DK Delta
DK Delta's picture

I started buying gold a long time ago, but bought hand over fist in the fall of 2008 and then again around 1000. Haven't bought since, because I was expecting a correction. I'm still expecting a further correction from here but have been burned waiting the past couple of years. 

A lot of people gain a lot of valuable stuff from Prechter, but his position on gold makes no sense and it is the single reason why i reject his theory

Wed, 05/25/2011 - 22:01 | 1311452 Bay of Pigs
Bay of Pigs's picture

Thanks for the reply DK.

I read the deflationist arguments all the time (mostly from Mish and Rick Ackerman who both like gold). It keeps me thinking and questioning my own set of beliefs. 

It truly is a sad state of affairs these days no matter how you view this broken financial system.

Wed, 05/25/2011 - 22:39 | 1311575 WonderDawg
WonderDawg's picture

DK, I think the Socionomic theory is enlightening. It explains a lot of historical cycles. There is some pretty compelling evidence to support the theory. What I have some disagreement with is the EWI real-time interpretation of the waves. Prechter has been right a lot, and wrong a lot. I still think the Wave Principle has a lot of value, but not for day-trading purposes.

But as far as explaining social trends and other social phenomena, it makes for an interesting study.

Wed, 05/25/2011 - 23:29 | 1311788 DK Delta
DK Delta's picture

yes, it does have value, but as far as I can see it does not have value as a means of acuratly predicting market movements. It has value as a philosophical and thoughtful exercise. Its one thing to talk about the high correlation between social mood and the height of a mini skirt and quite another to say that, in order for ABC to happen, gold must drop below 650, or whatever the level is that Prechter has been saying. 


but that's just me

Thu, 05/26/2011 - 04:01 | 1312249 Spirit Of Truth
Spirit Of Truth's picture

The Apocalypse Wave may be next:

At that point the merit of Prechter's arguments will be abundantly clear.

What you all fail to realize is that "money" is CREDIT and credit is the evaluation of economic relations based upon TRUST.  Deflation is the collapse of this evaluation since the relationships were fundamentally unsound.  In other words, we are dealing with issues of MASS PSYCHOLOGY. TPTB seeking to manipulate mass psychology and pump up evaluation of credit based upon lies (UNTRUSTWORTHINESS) are literally out of their minds because creative intelligence is uncontrollable BY DEFINITION.  Those seeking to control thought will receive their just desserts for violating man's trust with God.

Thu, 05/26/2011 - 00:41 | 1312003 Eternal Student
Eternal Student's picture

I really couldn't answer your question about those deflationists, as I don't generally pay attention to them. And please, please don't get me started about Prechter.

As I've mentioned, I'm in the Debt Deflationist camp. Gold and Silver will go down in price when there's the mother of all margin calls. But it's not happening now, and I'm invested in PMs. Even profitable, even after the engineered bloodbath in Silver earlier this month. But I will get out of both of them as we near the end of the great Ponzi. And I'll be back into them heavily afterwards.

Wed, 05/25/2011 - 18:50 | 1310768 nope-1004
nope-1004's picture

So.. US dollars were worth more in the '30's than in the 20's?


Wed, 05/25/2011 - 18:53 | 1310778 DK Delta
DK Delta's picture

Ostensibly yes. Is this a rhetorical question?

Wed, 05/25/2011 - 19:00 | 1310786 akak
akak's picture

No, they were ONLY worth more than at any time in the 1920s during the period prior to Roosevelt taking the USA off the gold standard in 1933 --- after that, rising prices were the norm for the remainder of the 1930s.

Wed, 05/25/2011 - 19:04 | 1310798 DK Delta
DK Delta's picture

Ok. Let's say you are right. Can you provide for me a list of prices for the following items in 1929 and then again in 1939:

Residential RE in NY

A basic suit

A Ford Automobile

A loaf of bread

Wed, 05/25/2011 - 19:42 | 1310939 akak
akak's picture

No, but I will wait for you to provide that information.

Wed, 05/25/2011 - 19:46 | 1310961 DK Delta
DK Delta's picture

haha, smart move. I will see if I can find it but no promises ;)

Wed, 05/25/2011 - 21:14 | 1311263 zhandax
zhandax's picture

Make it easy on yourself.  A gold double eagle (1 oz) would buy a really good suit in 1929, 1939, as it did in 1900 and still will today.

Wed, 05/25/2011 - 21:31 | 1311349 DK Delta
DK Delta's picture

I hate this "gold could buy you a really good suit in 1920 just as it can today" argument. What could gold buy you in 1999? What kind of crappy piece of shit suit could you buy for 300 bucks for a new years eve party in 2000? Today, you can buy a nice suit for an ounce of gold, but that is only because it has risen 500% in value. 

Wed, 05/25/2011 - 22:39 | 1311578 TruthInSunshine
TruthInSunshine's picture

It's really a disingenuous argument to claim that the U.S. dollar has lost 93% of its purchasing power since 1913.

I detest fractional reserve banking and Keynesian theory, but if the rules are set up a certain way, one is anything but genuine in making an argument like that unless they ackowledge that an hour of labor would have netted the worker 22 cents per hour in 1913, where today, it will net $18.

Relative values are important to report, if one wants to argue in a genuine manner.

How many hours' labor would have a new car purchase consumed in 1965 vs 2010?

Wed, 05/25/2011 - 22:58 | 1311653 akak
akak's picture

No, TiS, it is not disingenuous at all to argue that --- and for the record, the dollar has lost more like 96% of its value since 1913.  In fact, the argument is on point and entirely relevant.  And the reason that it is relevant is because that criminal debasement of our currency by a central-banking and financial elite has sucked a corresponding level of savings from the bank accounts and other savings of the average American in the process of that debasement, not to mention distorted investments and the economy in countless ways as a result of individuals and businesses trying to adjust to that currency debasement.

The ongoing depreciation of the dollar, which some like to call by the euphemism of "inflation" (hey, it's going UP, it must not be all bad, right?), is nothing but a theft of that exact percentage from every American, year after year, funneled into the pockets of a kleptocratic and sociopathic elite who hide behind the masks of "central bankers".  They and their Ponzi monetary system are nothing but an enormous fraud and con on humanity, and one of the largest crimes to have ever been perpetrated against civilization itself.

Wed, 05/25/2011 - 23:14 | 1311713 TruthInSunshine
TruthInSunshine's picture

akak, this isn't personal with your or anyone else spiritedly debating and disagreeing with any or all of the points I am making.

The only thing that annoys me is when someone like RoboTrader pops up and offers a substanceless comment devoid of merit and unworthy of mental consideration.

With that caveat out of the way, how the hell can you claim what you just did?

Let me ask you this:  Would you rather pay 0.5 your annual net salary for a new car or 3x your annual salary for a new car?

This may seem like a bizarre question as the answer is clear, but anyone who advocates against fractional reserve banking, while framing their argument on lost purchasing power of currencies in nominal values, is doing a disservice to destroying the cancer of fractional reserve banking practices, IMO.

The real malignancy and evil core of fractional reserve banking is creation of money from nothing, having it bear no relationship to anything of inherent value, other than contractionary and expansionary cycles that are the monopolistic right of a central "bank," and then adding in a particularly vile multiplier, that compounds that original sin by a factor many hundreds (and sometimes thousands - think CDOs).

Wed, 05/25/2011 - 23:22 | 1311748 akak
akak's picture

TiS, I do not entirely understand the gist of your argument against my argument here.

Can the evil of fiat currency, and fractional reserve banking (aka Ponzi schemes) not be fought from multiple angles?  I do not disagree with your condemnation of FRB, but believe I was merely amplifying upon it by attacking fiat currency debasement (which could not exist without FRB) as the stealth tax of so-called "inflation".

Wed, 05/25/2011 - 23:24 | 1311749 tarsubil
tarsubil's picture

Do you think a fractional reserve system would be that bad if banks had to worry about consequences and also actually have to suffer consequences for poor investments? Do you think it would be that bad if bank loans weren't propped up so much that other credit options can compete?

Wed, 05/25/2011 - 23:41 | 1311835 TruthInSunshine
TruthInSunshine's picture

If the creators and issuers of fiat had any personal skin in the game, and had to suffer personal losses as a result of their derelict actions, we'd avoid the boom and bust cycles of the past and present, practically speaking.

Debt is a cancer. It creates slaves. The slaves toil to enrich those who do the least in any economic structure based on fractional reserve banking practices.

Why were those most proximately responsible for the crisis of recent years all bailed out, with one lone exception (Lehman Brothers)?

They all claim to be players in 'free market and capitalistic enterprise,' yet they ran to their agents in government for special treatment in order to avoid having to suck up their losses, and in fact, they were made 100% on the riskiest CDS bets they made with weak counterparties, as Hank Paulson, Bernanke and Geithner all insisted they not even be forced to take a haircut on their risky, speculative bets.

Who else is given such guarantees but these oligarchs and modern day Barons, well connected to politicians, regulators and their families?

If not only the Federal Reserve, but its member shareholders (such as JP Morgan), all had to bear the same risk/reward that most economic participants do, and more importantly, if they had to actually put real collateral of inherent wealth down to either create or access capital, there'd be far fewer debt slaves in this alleged capitalistic system we hold so dearly in the U.S.

Whether there'd be as much economic activity or a similar standard of living (even assuming it's built of a foundation of fraudulent fiat and is, essentially, derived form a genuine Ponzi scheme, which I do assume) without fractional reserve banking practices is a fair question to ask, and I do not even pretend to know the answer to that question.

I do know that fractional reserve banking is a doomed system from the start, and it ultimately articially and punitively places a higher value on less productive, more speculative, more reckless and less valuable activity to society as a whole than alternatives (think Goldman Sachs the treatment it receives versus...well, just about any other enterpise - just about).

Thu, 05/26/2011 - 00:10 | 1311919 tarsubil
tarsubil's picture

Hmmm, maybe it sounds good in theory but in reality it always sucks. Thanks for the response.

Thu, 05/26/2011 - 02:10 | 1312151 zhandax
zhandax's picture

If the creators and issuers of fiat had any personal skin in the game, and had to suffer personal losses as a result of their derelict actions, we'd avoid the boom and bust cycles of the past and present, practically speaking.

TIS, you have some good points on which we can agree, but the above is completely untrue.  We seem to agree that fractional reserve banking is bad, but I would argue that debt-based money is worse.  We had fractional reserve banking with the dollar on a bi-metal standard from the ratification of the Constitution to the treason of 1933 and the ensuing panics, which resulted in the ruin of plenty of fractional reserve bankers with skin in the game, were a selling point for the vampires who created the federal reserve system and the debt based dollar.

I don't necessarily think your (and DK's) rebuttals are disingenuous but I do think you are both allowing price elasticities to obscure the overall picture whether we are talking suits, cars, or labor.  Those elasticities aside, a gold-backed dollar would buy what it would always buy from 1913 until 1933, but the debt-backed version has steadily eroded in value since.  The fed's engineered inflation rate backfired on them in the 70's and the loss of control reflected in the price of gold into 1980 made it apparent that gold price must be suppressed.  This suppression reached its pinnacle with the productivity gains and market advances into 2001 and caused an oz of gold, for the first time since the dawn of the Republic, to not be able to purchase a bespoke suit.  This has, of course, reverted to mean since.

Thu, 05/26/2011 - 02:28 | 1312189 TruthInSunshine
TruthInSunshine's picture

Fractional reserve banking fiat is debt based money.

At the time a FRN is created, it is a debt. Period.

There is nothing - now - to back it, but for the catch all phrase (since Nixon took us off the Gold Standard in 1971) of "The Full Faith & Credit of the United States."

A FRN = a debt instrument, and it's not a credit of any kind.

The only thing I forgot to mention before, and it's important, is not only do we have Modern Money Mechanics and fractional reserve banking creating our monetary supply on a foundation of debt instruments, but Congress actually delegated money creation to the Fed, and then allowed the Fed to create money from nothing, and loan it to the U.S. Taxpayers, requiring said taxpayers to tender interest to the Fed on the loans.

This is roughly the equivalent of my opening of a window manufacturing company, with all the fabrication equipment and raw materials on site to manufacture windows, but instead, I decide to lease my window manufacturing facility for $0 to my neighbor, who then manufacturers the windows, which I then buy at retail from him, and pay him interest on a finance installment agreement of purchase, on top of it.

Thu, 05/26/2011 - 03:12 | 1312205 zhandax
zhandax's picture

Now you are coming around....fractional reserve banking with real money and the government lets the individual bankers concerned swing in the wind for their sins.  Fractional reserve banking with "The Full Faith & Credit of the United States.", now the government wants you to share the losses.

This is the point on which I think we can all agree;  the concept of vesting "The Full Faith & Credit of the United States." in a banking cartel, pushed through congress on Christmas eve, and signed by a gullible ex-college president is arguably the worst act of treason ever committed in North America.

Thu, 05/26/2011 - 02:34 | 1312194 Mec-sick-o
Mec-sick-o's picture

From a consumer spending perspective, debt is just a reflection of current society malade: enjoy now, pay later (the consequences) and work.

Work is seen as an damned necessity:  "God expelled Adam and Eve from the Garden of Eden and they had to be forced to work hard for their food," etc...

Unfortunately we live under the umbrella of a FRB.  Are you willing to postpone your rewards by saving until you can pay the whole thing?

Your efforts to live solely on earnings and savings will be taxed away by IRS and inflation in the meantime.  If you decide to buy a house, a car, those things may take years to save.

On business perspective, it is better to borrow than accummulate enough cash to operate, if the profit and cash flow is high and fast enough to repay debt.

Debt issuance is inflationary.  It will compete with current dollars to increase present purchase power.  But it comes with a price.

Debt repayment is deflationary, it will suck liquid assets and retire them from circulation on formal economy.

The system works while new debtors come into existance.  The world population and productivity increased fast enough to avoid collapses.  The system stopped working because of strains in excessive demand, greediness on banks (issue excessive debt by "reducing risk" using fancy financial instruments blow jobs) and population growth slowdown.

It is elightening to make a simple excel spreadsheet and simulate money flow, debt creation, government spending, growth, interest, inflation, population, production (add your favorite) and you will see how each force affects the price of money.

Bankers were creative to spread local risk into global risk, thus literally taking money for free from most of the world workers.

Governments allowed this.  People elected their governments.

People get the government they deserve.  Democracy is our distractor, divide and conquer, their false flag upon us.

Wed, 05/25/2011 - 23:14 | 1311714 tarsubil
tarsubil's picture

The problem is trying to prove that we'd be better off without the policy of devaluing the currency while increasing taxation on the middle class. We can only guess how much easier our lives would be today if there hadn't been this colossal robbery through inflation and taxation. The 93% loss in purchasing power is just one way to try to quantify it. In the end, we'll never know how much was taken from us.

Wed, 05/25/2011 - 23:50 | 1311861 TruthInSunshine
TruthInSunshine's picture

Theft from the citizenry by the nation-state, in an ever expanding and mind-warping speed, in the form of perpetually higher taxes, fees, permit/license costs, etc., is a critical mass problem.

Thu, 05/26/2011 - 02:40 | 1312201 Fiat2Zero
Fiat2Zero's picture

Labor is not a store of value. Money is supposed to be.

Bizarre that you mix up the two here.

It's not a disingenuous argument. It may not be relevant to a point you are trying to make, but the fact that a dollar buys a lot less than in 1913 is a direct result of inflation.

There has been wage inflation as well, to keep up with the other inflated prices.

But that doesn't change the fact that if I held dollars as a store of value, I'd be sorely disappointed when I went to buy something with them later.

As far as Hedonics go, there's no doubt there is some effect there. However, it's just as disengenuous an argument to use the CPI (which removes energy and food from its computation) as it is to ignore the effect of rising pay on living standards.

Are you trying to say that inflation doesn't exist because we get paid more? A strange argument.

Thu, 05/26/2011 - 02:58 | 1312218 TruthInSunshine
TruthInSunshine's picture


I'm saying that if the system is set up a certain way, regardless as to whether any, some or all of us like the system, if a well made suit cost $40 in 1913 and $2000 in 2010, but the average wage in 2010 is 50x what is was per hour in 1913, then for practical purposes, there's been no real inflation.

As far as tampering with metrics that purport to record the rate of inflation, and other gamesmanship by the BLS or Fed, that's a different issue, but I don't disagree that it has happened and for the worst possible motives.

Thu, 05/26/2011 - 07:49 | 1312468 asymptote
asymptote's picture

"if a well made suit cost $40 in 1913 and $2000 in 2010, but the average wage in 2010 is 50x what is was per hour in 1913, then for practical purposes, there's been no real inflation."

Doesn't it mean that the relative values have not changed? Inflation has occurred, just in your example the purchasing power has not been reduced. I think if we sat down and looked at things like home prices divided by wages we would find purchasing power has really fallen. I've given this much thought over the past decade (On home prices in particular), and I wonder if the increased number of workers from females entering the workforce has more \ less inflationary effect that monetary policy. The number of houses needed to home the families stays the same, but the density of earnings per home increases. At the very least this blurs the numbers. 

Thu, 05/26/2011 - 17:53 | 1314584 Fiat2Zero
Fiat2Zero's picture

Untrue. You are simply saying that a person with no savings today has a similar situation for someone with no savings in the past. They can both earn a living.

The issue is with savings. Store of value. "Inflation eats away at your savings" - a hackneyed but true phrase.

You can't redefine commonly accepted definitions willy-nilly if you want to be understood (or taken seriously).

What I think you mean to say is "there has been no substantial change to the standard of living for the average wage slave."

That's far different than "no real inflation".

For someone whose icon is "end the fed" you sure talk and think like a banker (not an insult, just an observation). 

Fri, 05/27/2011 - 00:26 | 1315548 TruthInSunshine
TruthInSunshine's picture

How do I talk and think like a banker by writing what I did?

I explicitly stated that by the rules they've set up, and playing within those confines, as long as wages grow in relative uniformity with prices, there's no real inflation?

How is that wrong, empirically?

I don't like the rules they've set up, and I think we'd all be better off playing by a different set of rules than fractional reserve banking rigged Ponzi-nomics.

But relativity is important to recognize, lest one distorts their own arguments and good intentions.

The crux of the problem, morally and economically speaking, with fractional reserve banking, revolves around the origin, unsustainability, volatility and quality (or lack thereof) of the fuel used to drive economic growth.

Fri, 05/27/2011 - 03:36 | 1315701 faustian bargain
faustian bargain's picture

But wages always lag prices, and even if they generally follow the same path, it's that lag time that skims purchasing power off the middle class.

There are two opposing forces - the natural (deflationary) progress of free markets, versus the artificial (inflationary) malinvestment / Boom-and-bust cycles of centrally planned fiat currency with fraudulent fractional reserve banking. To the extent that the central bank has not totally killed the free economy yet, general standards of living tend to rise. But when the booms and busts start swinging wider and wider, the lows start eating away at that standard of living and the economy starts breaking down. Things keep going up in price (oh except for those RE 'assets' we all borrowed to obtain) while wages stagnate or disappear. It's a double whammy of inflation - we can afford less and less of what costs more and more. There's less 'credit' in the system but more base money supply; all this represents is a shift in the location of the malinvestment bubble, and the proximity of banks and the federal government to the Federal Reserve insures that the middle class will see precious little of that influx of money into the system.

In order for deflation to properly occur, the supply of dollars relative to the economy as a whole would have to decrease. This may or may not be happening when the RE bubble collapse is factored in, but that credit expansion and contraction sortof happened in its own world. All it did was created a bunch more debt slaves for the banks to skim from.

I don't see real deflation happening anytime soon. There are two ways the dollar can deflate. One is for the money supply to decrease enough that the dollar is able to purchase more and more over time. Good luck getting that to happen - people won't have any dollars to spend. The other way is for the economy to produce and gain in value relative to a stable money supply. That's the only real way out of this mess, but Bernanke, Geithner, et al, will avoid doing that until they're staring down the barrel of a gun, because what's good for the nation's economy is ultimately bad for central concentrations of power such as the Fed (and its banking constituents) and the government.

Thu, 05/26/2011 - 06:34 | 1312350 Popo
Popo's picture

God, that "Gold / Good Suit" argument is so incredibly stupid, but I guess it's not so amazing that it gets repeated over and over again by unquestioning gold bugs.  

The price of a suit has a huge range.  12 years ago, gold was $350/oz.    Is that the price of a good suit?   Or is $1600 the price of a good suit?   Or is that the price for two good suits?   Well it all depends on your definition of a "good suit".   Ergo, that argument is fucking retarded.

Gold has absolutely massive price swings.  It is **incredibly** unstable by any measure.

Stop this "Gold has constant value" bullshit.  Yeah sure,  gold has constant value when measured in gold.   If you don't know a circular argument when it bites you in the ass, then you probably shouldn't be investing.

Metals are incredibly volatile things.  Look at a fucking chart.  Store of value?  LOL.  Gold bugs just repeat the same mantras over and over again.  Does something that is a "store of value" rise 500% in a decade?  Did the dollar drop proportionally?  How bad do you suck at math?



Wed, 05/25/2011 - 21:50 | 1311417 A Nanny Moose
A Nanny Moose's picture

Seriously people! Can't we all just get the fuck along, and be civil about this shit long enough to have a reasonable discussion, without emotions getting in the way?? /rant off.

I am agnostic on the discussion, other than the obvious trend in fiat purchasing power, over a long enough time-line being toward zero. Perhaps this may be a decent starting point for a basket goods, including cars.

Do prices in a vacuum, without consideration for technology, innovation, and political/geopolitical activity of the era, tell the whole story? The deflationary behavior computer prices from 1990-today would be more about innovation, than about money supply, or destruction thereof. Would autos of the time exhibit similar behavior? Is making gold illegal to hold, then buying it at $20, and selling it back at $35 deflationary, inflationary, irrelevant or some shade of gray? What about sucking 2% of incomes out of private hands and putting it in a national "retirement fund?" What about protectionist tariffs? If we placed a tariff on gas/oil today, how would that affect prices across the board?

Just something to consider as you embark upon this noble journey.


Thu, 05/26/2011 - 17:54 | 1314591 Fiat2Zero
Fiat2Zero's picture

Rodney King, is that you?

Thu, 05/26/2011 - 18:02 | 1314622 piceridu
piceridu's picture



Wed, 05/25/2011 - 19:01 | 1310788 nope-1004
nope-1004's picture

No, not rhetorical.  Looking for evidence here that the confiscation of gold in the 30's was the result of a much higher valued USD.  Anyone?

BTW.... you can't have hyperinflation without deflation first.  So everyone is right, just depends when you want to isolate your time frame.


Wed, 05/25/2011 - 19:04 | 1310801 DK Delta
DK Delta's picture

that's exactly right. you need a deflation so powerful that it breaks the currency

Wed, 05/25/2011 - 19:12 | 1310832 nope-1004
nope-1004's picture

And you don't believe we're there already?

Look at the debt ceiling.  Look at medicare, social security, military budgets, and unfunded liabilities.  Who's going to pay?

No one.  It's already sitting in a hyperinflationary trance.  The next step is loss of confidence in the gov't, at which point comes not deflation but hyperinflation.

Deflation is an economic phenomenon.  Hyperinflation is a psychological phenomenon.  WonderBar is claiming the opposite.


Wed, 05/25/2011 - 19:19 | 1310865 WonderDawg
WonderDawg's picture

Deflation is an economic phenomenon.  Hyperinflation is a psychological phenomenon.

LMAO Uh, okay.

How about deflation and hyperinflation are each both economic and psychological in nature? Could that be true? Can you prove it's not true? You make a statement like that you better have some fucking strong evidence to support it.


Wed, 05/25/2011 - 19:57 | 1310995 DK Delta
DK Delta's picture

You just set about 50 trip wires for me to walk through. Deflation and Hyperinflation are both monetary as well as psychological phenomenon. If enough people decided that no matter what the Fed said or did that prices would deflate, then they would liquidate positions and prices would, by self fulfillment, deflate. Eventually, if the Fed was determined enough, it could force the inflation, but this would take time in the face of a deflationary psychology. The same holds true for hyperinflation, except in this case it is the monetary diarrhea that prods the market to lose faith and dump currency.

I believe that we were in deflation in 2008, and in part of 2009. I think that we went through a period of inflation again recently, and that we are headed back towards deflation. It is an oscillation. The liabilities that you site are not sufficient to determine whether we are headed into inflation or deflation at any given point in time. Those liabilities will remain with us during periods of inflation and deflation, because while we are inflating, debt increases, and while we are deflating it decreases.

Wed, 05/25/2011 - 20:06 | 1311016 akak
akak's picture

No, DK, the outcome of all this is NOT in doubt, when we use history as our guide.  In EVERY similar instance of a government chronically overspending itself into massive, exponentially-rising and fundamentally unpayable debt, the outcome was the same 100% of the time --- and it was currency debasement and/or currency collapse, NOT "deflation" and some magically appreciating fiat currency!  Frankly, I find it tiresome and insulting to have to repeatedly make this obvious and undeniable point to deaf ears and blind eyes, who fervently try to wish away reality.

I note that deflationists never argue from a historical perspective --- because they logically cannot, and must therefore resort to simplistic ivory-tower hypothesizing instead.  I find their complete lack of monetary history appalling, and revealing.

Wed, 05/25/2011 - 20:11 | 1311044 DK Delta
DK Delta's picture

I'm not a deflationist. I'm a realist. Please see my comment further down where I try and make my point to you on this matter.

Thu, 05/26/2011 - 03:12 | 1312227 merehuman
merehuman's picture

akak, i see the prices almost double in many things when i shop. been quiet a long time but had to butt in to thank you for your heroic effert to stay with whats true. History proves you correct. Thank you for hanging in there. You have my respect and admiration.

Thu, 05/26/2011 - 03:41 | 1312250 akak
akak's picture

Mere, good to see you again!

And what irony, too, as I was JUST thinking about you earlier today in this thread for some reason --- maybe I subconsciously somehow knew you were reading all this?  But I appreciate your compliments and moral support, and hope we will be seeing you again soon.

Wed, 05/25/2011 - 20:12 | 1311051 nope-1004
nope-1004's picture

except in this case it is the monetary diarrhea that prods the market to lose faith and dump currency.

Exactly.  Hyperinflation is the psychological impairment toward faith in the currency, as you admit.

You didn't mean to walk over your own trip wire, did you?


Wed, 05/25/2011 - 20:22 | 1311083 DK Delta
DK Delta's picture

yea, it ends in a loss of faith in currency, but only because of monetary debasement. It's not like it just happens out of no where. 

Wed, 05/25/2011 - 20:22 | 1311084 DK Delta
DK Delta's picture

yea, it ends in a loss of faith in currency, but only because of monetary debasement. It's not like it just happens out of no where. 

Wed, 05/25/2011 - 21:01 | 1311209 sullymandias
sullymandias's picture

I love these one word per line comments.

Wed, 05/25/2011 - 20:18 | 1311053 asdasmos
asdasmos's picture

What measures do you use for inflation and deflation to determine what the market is in?


If the currency is constantly debased, isn't the measure itself corrupt?


Also, what do you think about the idea of 'bi-flation'? Does the whole 'market' have to oscillate or can it be in various sectors?

Wed, 05/25/2011 - 20:09 | 1311050 Harbourcity
Harbourcity's picture


This is what people don't see.  You can't see the storm when you are in the eye of it.

We are in the deflationary crisis *right now*.  That is what they are battling.  It is the failure that will cause the hyperinflation.

It's just a matter of time.

Wed, 05/25/2011 - 20:22 | 1311077 asdasmos
asdasmos's picture



If they were to raise rates (even by a couple of %), wouldn't the debt servicing cost cripple the balance sheet along with the other (unfunded) spending programs forcibly entering it into a debt spiral? Thereby ruining the confidence game?


Bernanke can create debt but he cannot make it go away. Is there not a limit?

Thu, 05/26/2011 - 00:38 | 1311998 TruthInSunshine
TruthInSunshine's picture

There is an estimated 600+ trillion (notional value) of CDS/similar private party contracts in existence.

How the unwinding of those contracts play out, with many being between what Bernanke, Geithner & anyone else involved in the next crisis definitely designating as Too Big To Fail, is anyone's guess, but Bernanke's ammunition in the event of such a crisis unwinding in a rapid and highly disorganized manner will make the last crisis look very tepid by comparison, and Bernanke and even all the central bankers will be effectively firing upon a charging rhinoceros with super soakers.

Thu, 05/26/2011 - 01:35 | 1312099 asdasmos
asdasmos's picture

"Bernanke and even all the central bankers will be effectively firing upon a charging rhinoceros with super soakers."



Thu, 05/26/2011 - 00:03 | 1311909 Goldenhands57
Goldenhands57's picture

Here's a great point. Exactly why this is all very clouded. It's not easy to see when your in the thick of this exactly what the direction this will go. This one is pretty damn likely tho. So folks..those that were in our early earning years in the mid to late 70's and very early 80's can share something. There were no such things as Credit Cards for the common working man or least for the young starting a family life like I was then.  Now this type of debt is a crushing weight on all with high balances (anything over 2 monthly incomes total on these things is too much!)  There were no car loans, my young wife and I could not even consider buying a home..not at 20+% interest and very strict rules to meet. We were fortunate to be able to pay the rent!! But I bought in 1974 thru 1977 all the junk silver and gold I could afford at estate or garage sales..even pawn shops. I sold it all in 1980, and we bought a duplex, living in 1 of the units. We had an offset to the debt BEFORE we bought! By the late 90's I was called about every crazy thing you could imagine about our Gold and Silver bullion coin purchases..and at $310 to $315 an ounce Gold and around $3 Silver was quite a hit to the budget, but we kept at it. To me it was not at all difficult to see that the unfunded liability of Social Insecurity and Medi's for my Generation alone was impossible to meet, so crisis HAD to come to our doorstep. I hate like all Hell that I was correct!!! By 2000 it was clear we would be in deep trouble beginning 2009..even without the crash Turbocharged by Greenspan/Bernangster policy, and actually..we were set up to have this back into the DotGone timeframe! Harbourcity has it down pat.. we are going to drive this "don't tell the truth so it'll be ok" mess right into Argentina style Inflationary Depression. This is why the old guys here are saying to those hesitating "yes, PM is expensive, but by perspective only". Ask a family man in Minsk tonite if a 1/10 ounce Eagle is worth 4 days pay to have in hand so he can go buy his children needed medicine or enough food for the table for a week, which you can do still in America. He can't!! I don't like this shit any more than others here..but it is only a prudent person that will do without a little here and there now to add the cushion when the SHTF, which it must if we ever hope to get back on track again. Buy some 90% Silver every week if nothing else. If you can buy some 1/10 ounce Gold then get in there and make the purchase, because this is going to happen. Remember..PM can never go to Zero value..not on this Planet anyway.      

Thu, 05/26/2011 - 03:27 | 1312237 The Navigator
The Navigator's picture

Good on you GoldenHands57 - I'm with you. I started later than you but I also could see that this wild-ass debt-based spending would lead to nowhere but hell. So in 2007 I bought 2 Kruegerands for $700 each, and then bought silver every month no matter what the price. Every month, $1,000 or $2,000 worth and have continued that since those first 2 Kruegerands. Sorry to say I lately bought silver at $48/ounce but happy to say I also bought some lately at $35/oz. I don't worry about the FRN-based price, my only objective is accumulation of silver. Last month and this month I hit Ebay hard, won about 30 bids and lost 120+ bids (but always got it at that days spot price). Bought 90% silver coins as that was the only category of silver that I don't own and figured there might come a time when very small denominations of silver could be useful.

I have no idea if Deflation or HyperInflation will rue the day - that's not the barometer I'm watching - it's the SHTF barometer I'm watching and that one is right at the red zone.

Belarus, Greece, Ireland, Portugal, Italy, Spain - that's my guess as to the order of Black Swans landing or about to land - on a patch of land of 1 foot x 2 feet, with not an extra inch for one more black swan to land. And later, when the whole flock arrives, TSHTF big time.

Will we get 1 more month or 6 more months before TSHTF? 1 year or 2 years? My crystal ball is extremely foggy on the timeline, but when (not if) TSHTF the main concern will not be about Deflation or HyperInflation, it will be did I accumulate enough to make it thru to the next port.

Thu, 05/26/2011 - 08:48 | 1312629 tarsubil
tarsubil's picture

I tend to agree but 1/10 oz Au is a rip off. Save up and buy 1/4 or 1/2 instead.

Thu, 05/26/2011 - 08:14 | 1312515 asymptote
asymptote's picture

"Deflation is an economic phenomenon.  Hyperinflation is a psychological phenomenon."

+1. I like that comment. 

The early stages of a currency rejection look like deflation because credit is rejected, not because it is too expensive. Doesn't true deflation generally coincide with high interest rates? It certainly did in 1927 in the UK when Montagu Norman was putting the sterling back on the gold standard. It also did in Germany in ~1930 when Hjalmar Schacht deflated to stop the hot foreign money from overheating the Germany economy. 

Today however, world wide with deflation apparently staring us in the face most interest rates are as low as they can go credit is being rejected because the currencies are no longer trusted. The difference today however, that the the nations that actually hyperinflated in the past had a flight to safety option. Today with nowhere safe left to park your cash but spec returns to act as a buffer. (Ignoring gold and silver, the publically forgotten options). 

If central banks really were afraid of deflation they would not be buying gold today, they would buy it next year at lower rates. Besides why would a CB even need gold with a printing press, unless they knew the currency would soon be worth nothing, nd needed to reload for the next paper game?








Thu, 05/26/2011 - 17:53 | 1314601 Fiat2Zero
Fiat2Zero's picture

Binary/absolute thinking "breaks the currency" - not true. Inflation is a monetary policy decision. All it takes is for someone to decide to do it (i.e. they have decided deflation is dire enough).

Guess what, BB already decided deflation was bad enough and that "he wasn't going to let the same mistake happen again (w.r.t. The Great Depression)".

He's already decided.

Wed, 05/25/2011 - 21:10 | 1311257 sullymandias
sullymandias's picture

you can't have hyperinflation without deflation first.

That was in 2008, right?

Thu, 05/26/2011 - 06:31 | 1312354 Popo
Popo's picture

I think you have your order of operations wrong.

Thomas Jefferson had it right years ago:  "First by inflation, then by deflation".  

It's an old game.


Wed, 05/25/2011 - 18:58 | 1310777 akak
akak's picture

WonderDawg, nice to see you back spouting your disingenuous misinformation once again.

There is NOT ONE example of a true deflation under a fiat currency regime, despite your claims to the contrary, and I welcome you to discredit yourself on monetary matters even further by attempting to locate any.

PS: The Great Depression was deflationary ONLY during the time (1929-1933) that the USA was still on the gold standard --- once the statist bastard Roosevelt took the USA off the gold standard, the deflation ended virtually to the hour.

Wed, 05/25/2011 - 18:59 | 1310783 DK Delta
DK Delta's picture

akak, there is no such thing as permanent deflation or permanent inflation. Deflation and inflation are transitory phenomena. In a fiat money system, the dominant trend is inflation, with shorter but more powerful periods of deflation.

Wed, 05/25/2011 - 19:03 | 1310794 akak
akak's picture

That can only be true if one is willing to torture and mangle the definition of "deflation" beyond all classical recognition.  I stand by the historical record, which clearly demonstrates that the sad and sordid history of fiat currency is DEFINED by currency debasement and frequently outright collapse.  I still ask those of you who believe that deflation has EVER ocurred under a fiat currency regime to show me one example of it.

Wed, 05/25/2011 - 19:07 | 1310813 DK Delta
DK Delta's picture

I just did. JAPAN. Your definition of deflation makes no sense. You can't isolate prices. You can't just look at prices in certain areas. You have to look at prices everywhere. Money and credit flows through the entire economy. Deflation or Inflation has to start at the source, and that source in a fiat system is the expansion in money and credit, not prices of xyz

Wed, 05/25/2011 - 19:15 | 1310853 akak
akak's picture

I am certainly no economist, but I think you (and all other deflationists whom I have read) are making a gross errror in casually conflating credit with money --- one can NOT make such a sweeping assumption!  By blithely equating the two, you are being led astray into taking the decrease in their sum as somehow indicative of deflation, when in fact you are comparing apples to oranges, or trying to find the sum of 8 + blue.

By that erroneous rationale, we should have been experiencing massive inflation during the runup in the stock and real estate markets, when I note that we as a society did not.

Wed, 05/25/2011 - 19:31 | 1310897 WonderDawg
WonderDawg's picture

The more you write, the more clueless you reveal yourself to be. In a fiat (fractional reserve) system, credit IS money. That is where you miss the whole fucking concept and reveal your ignorance.

Get a clue, junior, before you hurt yourself.


Wed, 05/25/2011 - 19:44 | 1310946 akak
akak's picture

You are either wildly misinformed, or particularly disingenuous and dishonest.

Probably both.

And your statement is absurd --- ALL credit does NOT equate to money!  Give me a break with such shallow nonsense.

Wed, 05/25/2011 - 20:26 | 1311106 traderjoe
traderjoe's picture

Debt-money is not money. Money is a store of value. Check the Black's Law Dictionary definition of money - it specifically excludes notes, etc. (the frn is a note). You really think in a deflationary collapse people will demand MORE fiat? They'll sell their food, guns, etc. for less fiat? Good luck with that.

Wed, 05/25/2011 - 20:04 | 1311030 DK Delta
DK Delta's picture

I'm not conflating money with credit dude, but it should be noted that the federal reserve notes in your pocket are a credit issued by the central bank. There actually isn't any real money (money in the sense of a non-liability asset that can function as a unit of exchange and store of value) in our economy; it's all smoke an mirrors.

This being said, you have to understand that prices are affected by both money as well as credit. If you want to buy a house, you don't pay cash. You take out a mortgage, in other words, you borrow on top of an initial capital base.

Do you understand the implication of credit availability on prices? The more credit in an economy, the higher the prices. Credit pushes prices up or down like an acordian. If you expand credit in an economy, you expand prices. If you contract credit, you contract prices. Money supply can remain constant. We saw this during the south sea bubble, the tulip bulb mania, the Compagnie Nouvelle du Canal de Panama fiasco, etc. etc. etc....

Credit is what creates that giant vacuum that allows for huge price drops. It is what allows for air pockets in asset prices. Thats why you can have a crash and everyone can say "where did all the money go????" It didn't go anywhere duhhhh it wasn't money. It was credit.

Inflation in money AND credit is what you need to look at, not the CPI or the price of homes or the price of an AC hooker. You must look at all prices, and the best way to do that is to look at the source of those prices which is the supply of, once again MONEY AND CREDIT.

Wed, 05/25/2011 - 21:19 | 1311287 Alpha Monkey
Alpha Monkey's picture

Utah made gold and silver legal tender.

Wed, 05/25/2011 - 23:39 | 1311813 tarsubil
tarsubil's picture

Okay. So M3 can decrease while M0 has dramatically increased. Now, credit can continue to tighten and shrink but doesn't the extra M0 used to compensate sooner or later get converted to credit and M3 expands beyond where it started, a lot? Hence the argument that we are in the deflationary cycle before sustained high inflation or hyperinflation right now?

Wed, 05/25/2011 - 19:35 | 1310913 WonderDawg
WonderDawg's picture

DK, I've had debates with akak before and his usual tactic is to resort to misdirection and semantics when confronted with indisputable evidence that blows his argument out of the water. He is close-minded to the facts. For some reason, I feel compelled to educate him, but it's futile, I know.


Wed, 05/25/2011 - 19:41 | 1310932 akak
akak's picture

On the contrary, it was you, WonderDawg, who fled from the overwhelming monetary historical facts and evidence provided by tmosley and myself.  You argue from an implicitly pro-Establishment, Keynesian, statist position, and I'll be damned if I will allow you to subvert and misrepresent data and events relating to monetary history that I know all too well, and clearly far better than you, who can only repeat the shallow and inaccurate economic and monetary talking points heard in such stellar sources of wisdom such as CNBC.

Wed, 05/25/2011 - 19:46 | 1310955 WonderDawg
WonderDawg's picture

"You argue from an implicitly pro-Establishment, Keynesian, statist position, and I'll be damned if I will allow you to subvert and misrepresent data and events relating to monetary history that I know all too well, and clearly far better than you, who can only repeat the shallow and inaccurate economic and monetary talking points heard in such stellar sources of wisdom such as CNBC."

Nicely done, the exact opposite of all my comments. No wonder you don't know shit, your reading comprehension is about equal to my 6 year old niece. Why don't you read Vjay Boyapati's Why Credit Deflation Is More Likely Than Mass Inflation: An Austrian Overview of the Inflation Versus Deflation Debate. I downloaded it and read it last year.

Now, what am I again? A Keynesian? Try again.


Wed, 05/25/2011 - 20:17 | 1311067 akak
akak's picture

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.


Wed, 05/25/2011 - 20:49 | 1311166 WonderDawg
WonderDawg's picture

I've already explained my stance, I'm not going to keep repeating it so you can keep getting it wrong.

I agree there will be hyperinflation, but not before a deflationary collapse that makes 2008 look like popcorn fart.

That is all.


Wed, 05/25/2011 - 21:01 | 1311225 akak
akak's picture

Yeah, that's right --- convince the gullible and ignorant to take exactly the WRONG steps towards preserving their savings, by spreading your specious and dishonest fearmongering over the nonexistent threat of a fiat currency deflation, and setting them up to be thoroughly fleeced yet again by the sociopathic and criminal power elite.

Just who do you work for, and on whose behalf are you spreading your malicious disinformation and lies in this forum?

Wed, 05/25/2011 - 22:24 | 1311532 WonderDawg
WonderDawg's picture

See, that's the difference between you and I. You resort to name calling and tantrums when someone disagrees with you. I, on the other hand, respect the right of someone else to have a different opinion.

I understand the inflationary argument, and I disagree. I've looked at the facts, I've studied various arguments for both sides, and I conclude that we are in the early throes (3 years) of a deflationary depression. The first bout with hyperinflation already occured in the number one asset of the average American adult: real estate and housing. Then the bubble popped, and that was deflationary. Now the Fed is attempting to reflate the bubble and save the banks, but the ruse is wearing thin on the American population. You can't lend money if you have no borrowers. This is deflationary.

After the next phase of the deflationary collapse, then when might see hyperinflation. Maybe. But not now.

But I respect your right to take the other side. I know you haven't actually formed this conclusion on any study of the facts, you're merely repeating what someone told you. Clearly you don't understand the nature of the monetary system, you've demonstrated this time and time again. I only hope that one day you'll open your mind and try to take an objective look at the facts. This isn't merely economic. This has much to do with the ebb and flow of the collective social mood.

My conclusions are based on a blend of elements from several different schools of thought, the primary two being the Austrian School and a study of Socionomics. The two would seem contradictory at first glance, but there are elements of both that can be used to formulate a picture of the truth. Von Mises studied the trees, Socionomics studies the forest.

So now it's on the record. I'm not a Keynesian, statist, status quo anything. Put that in your pipe and smoke it. Good shit.


Wed, 05/25/2011 - 23:09 | 1311607 akak
akak's picture

My conclusions are based on a blend of elements from several different schools of thought, the primary two being the Austrian School and a study of Socionomics.

But like every other misinformed and/or disingenuous deflationist, your arguments are NOT based on monetary history, particularly the indisputable fact that EVERY --- as in ALL OF THEM --- chronically overspending government (such as that of the USA today) that took on exponentially increasing levels of unsustainable debt, ended up causing the debasement if not the total collapse of their currency, and the resultant wiping out of their citizens' savings (except for real, physical assets such as real estate, physical plant, gold, silver, artwork, etc.).

Do you deny this?

The fact is that there has not been ONE single example of your putative "fiat currency deflation", in which escalating levels of government spending and debt magically somehow led to an appreciating fiat currency --- it has always, ALWAYS led to the precise opposite.

Do you deny this?

So you still have yet to explain to us, in your COMPLETE denial or avoidance of ALL of monetary history, why you feel that "this time is different".  But for the record, and in light of your past lies and disingenuous arguments and evasions when cornered by the truth, I do not believe that you are participating in this discussion with goodwill and honest intent.

Wed, 05/25/2011 - 23:09 | 1311684 asdasmos
asdasmos's picture

+1 for monetary history

Wed, 05/25/2011 - 23:41 | 1311838 WonderDawg
WonderDawg's picture

Every time someone gives you an historical example, which I've already done several times (for instance, I cited the Great Depression; you say it wasn't "fiat", I say it doesn't matter, it was fractional reserve, which again today is the underlying cause of this catastrophic situation), and so has DK, you ignore it. Not only do you refuse to acknowledge the valid arguments of others, you act like a little bitch when confronted with facts that you can't understand. Grow up.

Thu, 05/26/2011 - 02:17 | 1311912 akak
akak's picture



You have to be one of the most annoyingly disingenuous posters, and outright liars, with whom I have had to interact in this forum.

NO, you did NOT give me any examples of a fiat currency deflation --- because you know that you cannot (I NEVER claimed that NO historical deflations ever ocurred, just none under a fiat currency regime --- you dishonestly put words in my mouth again).  But you then, in later posts such as the one above, will dishonestly claim to have done so. 

There is utterly no possibility of intelligently or honestly conversing with such a misleading, deceptive, disingenuous liar such as you.  All you know how to do is push other people's buttons, and antagonize them in the most outrageous manner --- which I suspect may be your real motivation here.

And again, you have also still pointedly ignored the fact that I keep throwing in your face, that every chronically overspending government that has taken on massive, exponentially-growing and clearly unsustainable levels of debt has ended up debasing their currency, or watching it outright collapse. 

So again, liar, give us all here all those examples of your putative fiat currency deflations --- which do NOT include Japan post-1989 as discussed above, and which do NOT include the Great Depression after the 1933 ending of the gold standard, which period being notably and clearly inflationary.

Wed, 05/25/2011 - 22:10 | 1311475 francis_sawyer
francis_sawyer's picture

+ one hundred trillion

Thu, 05/26/2011 - 08:29 | 1312560 asymptote
asymptote's picture

Not that I really want to disagree, but in 1920, the UK was battling with inflation from the rampany money printing during the war, resulting in a 250% rise. The BOE decided to intentially deflate the economy to return to the gold standard at the same sterling PPP as it had prior t the war.

Taken from Lords of finance, Liaquat Ahamed, page 156. 


This does not disprove your intent however, as the deflation was intentional and related to the gold standard mentality(prices must not change due to monetary expansion). In fact I think that all the cases we could bring up will be clustered around the tail end of the gold standard. Central banker psychology was different back them.

Meaning no offence. 

Thu, 05/26/2011 - 02:11 | 1312164 Fiat2Zero
Fiat2Zero's picture

Hyperinflation is transitory until the currency drops below the cost of 20% cotton based paper, and ink, as well as energy costs to run the printing press.

Transitory, now where have I heard that 2-bit word?

Ben, is that you?

Wed, 05/25/2011 - 19:03 | 1310796 WonderDawg
WonderDawg's picture

Dude, fiat doesn't make a shit, it's irrelevant. Focus, son. It's fractional reserve that's the problem, and perhaps the fractional reserve system itself could survive if enforced, but the reserves are fiction and have been for years.

When debt is defaulted, it's deflationary, no? So, then, the Fed can attempt to save the system with bailouts, but only as long as the public allows it. The tide is turning, and when it does, the Fed will be, not toothless, perhaps, but certainly less able to continue this course. The collective public mood will see to that. Sooner than you think.


Wed, 05/25/2011 - 19:18 | 1310862 akak
akak's picture

When debt is defaulted, it's deflationary, no?


There you go again, simplistically equating credit with money!  Where do you get the theoretical or historical justification for making such a wild assertion?  I know that all the Keynesian hacks do so, but I hope you are not claiming to be following their lead in ANYTHING relating to the real world!

Wed, 05/25/2011 - 19:24 | 1310887 WonderDawg
WonderDawg's picture

I'll give you some guidance with regard to reading material. Start with Irving Fisher's The Debt-Deflation Theory of Great Depressions. Read that, and then get back with me. Until then, you would do yourself justice to shut the fuck up because you have no clue what you're talking about.

I'm more in the Austrian camp, by the way. If you get time, check out Human Action by Von Mises. It's a light read, shouldn't be any problem for a guy like you.



Wed, 05/25/2011 - 19:49 | 1310958 akak
akak's picture

If you were REALLY "in the Austrian camp" as you claim, you wouldn't even be willing to take a dump on the statist, proto-Monetarist, quasi-Keynesian bilge written by the discredited hack Irving Fisher.

God, you are a disingenuous liar!  And a particularly bad one, too.

Wed, 05/25/2011 - 20:51 | 1311173 WonderDawg
WonderDawg's picture

That is some funny shit. Normally I would say let me have some of that shit you're smoking, but in this case, I'll pass. That shit be make you stupid, man.


Wed, 05/25/2011 - 19:14 | 1310809 Spalding_Smailes
Spalding_Smailes's picture

Dollar denominated debt ....


Always a thirst for more or rolling over maturing dollar denominated debt 


Credit default swaps, commodities, securitization, forex, letters of credit for global trade ... Everyone across the globe plays the game using our poker chips


Petrobras is considering its financing options as it reviews 680 investment projects, Gabrielli said in an interview at a conference outside Oslo. The Rio de Janeiro-based company sold $6 billion of dollar-denominated bonds in January.


May 19 (Bloomberg) -- Malaysia is said to be planning a 10- year dollar-denominated Islamic bond, its second sovereign sale of Shariah-compliant debt in a year, four people familiar with the matter said.


On February 2, the Swiss National Bank, a well respected central bank, announced that starting in the middle of February, it would issue its own US dollar denominated certificates—T-bills by another other name.These dollar-denominated bills will be sold every two weeks, starting Feb 16 and in tenors of 28, 84 and 168 days. Current counterparties of the Swiss National Bank can participate in the auctions and the bills can be used as collateral in other dealings with the central bank.

Thu, 05/26/2011 - 00:16 | 1311935 Sophist Economicus
Sophist Economicus's picture

Why not.   If you want to raise money, sell dollar denominated debt.   It will be gotten on better terms (folks are awash in dollars and want to get rid of them) and then you can exchange for the currency of your choice.    This game works till it doesn't.    And when it ends, watch out below

Wed, 05/25/2011 - 21:14 | 1311267 Alpha Monkey
Alpha Monkey's picture

"It's the fractional reserve lending that "creates" money, and is responsible for the crisis we are experiencing now, and will ultimately lead to deflation, because money (credit, debt, whatever) is being destroyed and will continue to be destroyed as more debt is defaulted."


What else creates money? The federal reserve.  As more and more people default, the federal reserver will step in (read: bail-out) to attempt preventing asset depreciation, as well as ensure his bankster buddies are able to continue collecting record paychecks and bonuses.  Yes, we know this policy doesn't work, yes we are watching it fail right now.  But the central bank and the financial elites don't care.  They are getting theirs, while the rest of us will suffer the concequences of corrupt monetary policy and financial regulation.


Furthermore, what happens as more money is printed by the fed?  It will lose value.  What happens when one of the central banks we've forced to take dollars, decides they are tired of holding an asset that only goes down in value (long term trend)?  What might they trade those dollars for, in an attempt to retain value or store wealth.  And when this trade occurs, what do you think the effect of that will be on the dollar?  And what effect do you think that will have on other central banks and investors world wide holding dollars?  What asset(s?) might be used as a world recognized store of wealth?

Thu, 05/26/2011 - 02:53 | 1312213 Mec-sick-o
Mec-sick-o's picture

When there are no more people to lend to, the credit bubble/ponzi blows.

This starts a deleveraging cycle and debt defaults occur due to lack of money in the system.

It is exacerbated by further consumer retrenchment.

That's what bothers me.  The consumer should spend wisely, as needed.  Not induced by fashion, easy money credit or government spending.  Bubbles are caused by easy credit, but taken by consumer.  We are part of the problem.

Thu, 05/26/2011 - 22:14 | 1315295 Eternal Student
Eternal Student's picture

Here you go, Akak. Yes, the cost of living has been falling, and only with today's numbers has the CPI recently increased:

"Japan's core consumer prices rose in April from a year earlier for the first time in more than two years"

So much for the argument that you can't have deflation in a purely fiat regime. Reality is always a b*tch.

Wed, 05/25/2011 - 18:43 | 1310739 tired1
tired1's picture

Much depends on who owns the debt, it Japan it's held by its' citizens. Under no circumstances should Belarus cede controling interest of anything to the bankster vultures. If they do, it will be a repeat of the robbery of Russia by those same vultures. which occured under Yeltsin.

Wed, 05/25/2011 - 18:38 | 1310702 TruthInSunshine
TruthInSunshine's picture

We have had deflation in the U.S., and nasty episodes of it, in the past.

It occurred in the 30s and the 40s and 50s.

In fact, we're still seeing it in categories of assets requiring access to credit to purchase - even now.

Let's look at housing as an asset class. It's a rather large one.

If the claims I believe are accurate play out according to the numbers (banks sitting on piles of foreclosed and ultimately taking on more foreclosed properties - residential, office, industrial, commercial) takes place, gravity dictates more bad loan writeoffs and downward price pressure (two forces, that when taken together, create yet another cycle of the deflationary process).

Banks aren't loaning money right now, except in the select cases where they're getting an express government backstop on the loan (think FHA), because they know they can't afford to put the very capital that they have in reserve at risk, as they much more deleveraging to deal with.

QE failed to do anything but help distort the price disequilibriums that ZIRP goosed into irrational territory.

QE was an abject failure of economic and monetary policy, even by Bernanke's goals as stated from the outset.

Not only did QE and ZIRP kill consumption and drive the middle class into paranoid mode, but they now have created yet more bubbles that Bernanke now has to try and create a solution to deal with (because he's incompetent).

ZIRP and QE have tilted the ship that is the global economy into a 45 or 50 degree angle, and Bernankincide now has to try and figure out how to level it before it capsizes.

Wed, 05/25/2011 - 18:39 | 1310724 akak
akak's picture

The only deflations that the USA has ever experienced, even broadly defined (i.e., falling general price level, in addition to the more strictly proper falling money supply)  was the extended and gradual one from the 1870s through the 1890s --- which incidentally, coincided with the greatest economic expansion in US history --- and the period of 1929 to 1933, while we were still on the gold standard, and which ended precisely when the statist tyrant Roosevelt removed the USA from the gold standard.

Wed, 05/25/2011 - 18:45 | 1310742 jm
jm's picture

Whether I agree with you or not, this conversation is a damn sight better than the usual name-calling and hysterics you've spewed in the past. 

Keep up the good work.

Wed, 05/25/2011 - 18:52 | 1310772 Hugh G Rection
Hugh G Rection's picture

stop arguing guys...


Well get to experience BOTH!

Wed, 05/25/2011 - 18:48 | 1310757 Sophist Economicus
Sophist Economicus's picture

TIS - DEflation would be right if governemnt didn't meddle, transfer payments were stopped, ALL debt, including GOVERNMENT were allowed to collapse and TAXES stayed at some level of parity to support the EXISTING debt and transfer promises.

BUT, none of the above will happen - cannot happen.    As soon as the govenment fails to make a bond payment, the currency will devalue.   If people take to the strrets - transfer payments will flow fast and hard.   The idiots in washington will come up with spending scheme after spending scheme to 'stop', 'abate', 'remedy' the debt collapse.

THe FED has been buying debt and montizing the Treasury.  IT WILL NOT STOP.   Hyperinflation will be upon us -- it IS THE RESET we need.


I am not, and never have been Chumbawumba

Wed, 05/25/2011 - 20:34 | 1311120 akak
akak's picture

Yes, SE, the scenario you describe is not how fiscal and monetary events MUST play out --- it just happens to be how identical or similar fiscal and monetary events HAVE played out, every time, throughout history.

Governments always believe that THEY will be the ones, 'this time', to finally dodge the debt bullet --- and every time they end up proving themselves wrong.

Maybe, one day, this time WILL be different --- but are you willing to bet your life savings on it?

Wed, 05/25/2011 - 22:07 | 1311465 TruthInSunshine
TruthInSunshine's picture

Let us see if we can all agree on some basic premises.

Both hyperinflation and hyperdeflation are political phenomena. Anyone disagree?

Plain vanilla inflation and deflation are monetary and/or economic conditions. Anyone disagree?

We have yet to experience hyperinflation nor hyperdeflation since the crisis (regardless as to the cause, or how bad is truly was, or what systemic risk one believes it actually posed) of 2008. Anyone disagree?


Okay. Moving on.


We have seen a dual track of some inflationary and some deflationary trends since the 'crisis' of 2008, with the inflationary trends revolving around inelastic goods/services, such as oil, food, energy, medical care, and the deflationary trends revolving around real estate, some segments in the durable goods category, and labor/services. - Anyone disagree?

The most deflation has taken place in asset classes most heavily dependant on consumer credit and access to capital-on-loan in order to obtain, while the most inflation has taken place in asset classes that compete with bonds/treasuries, such as commodities and equities (even discounting that the real demand/supply curve for commodities has been weak for much of this period, as I believe it has been). Anyone disagree?

Bernanke has flooded member banks with easy capital by purchasing assets from them through the TARP & TALF programs, allowing them to replenish capital reserves that had been diminished due to the need to write off bad debts via the discount window (and in the case of foreign banks, currency swaps), but many of these banks are not parting with what have now become excess reserves due to the still poor condition of their balance sheets and loan portfolio quality (even the ones that have written off massive amounts of toxic assets via Bernanke's assistance). Anyone disagree?

Bernanke and Geithner have pushed Congress hard to dramatically relax the standards by which the integrity of banks is judged, and in fact, many banks have been allowed to dramatically underestimate the amount of bad debt they still own and further deterioratio in their loan portfolios. Anyone disagree?

Quantitative Easing was drafted and implemented, at least in large part, in order to allow the Federal Reserve to monetize approximately 75% of U.S. Government deficit spending, and to allow Bernanke to artificially lower all portions of the interest rate yield curve, as the Fed has become the buyer of last resort of treasuries bearing artificially low yields. In other words, had the Fed not done so, more treasury auction failures would have surely occurred, and interest rates on treasuries and in the real economy would be at least somewhat higher than where they are now. Anyone disagree?

It is at least plausible, and maybe even a near certainty, that equity markets have been heavily inflated as a result of Fed policy, via POMO, and in fact, it's even possible that the Fed has even been actively and directly undertaking actions to drive indexes higher, or alternatively, and at the least, provide an artificial 'floor,' by which they are striving to prevent a collapse in equity markets, as might be the case if normal market forces absent large scale central bank intervention was not taking place. Anyone disagree?

Conversely, the Fed has sought the opposite result in bonds and interest rates, via the treasury note monetization discussed above.

The true rate of U.S. inflation is most likely between 4.5% and 6%, annualized, at present levels. Anyone disagree?


Bernanke and the Congress are now running into conflict, as Bernanke's monetary policy, while not producing hyperinflation, has produced enough real inflation to foster anger on Main Street, with the added negative consequence that some Americans are increasingly frustrated by their general perception that U.S. Governmental Policies (whether they are able to discern between Fed policy and Congressional or Executive Branch actions, or not) have favored Wall Street over, and even at the expense of, Main Street.

However, Congress and the Fed are in a symbiotic death spiral, as Congress needs the Fed to keep monetizing the debt, absent either a) a dramatic reduction in U.S. deficit spending, or b) a dramatic hike in U.S. Treasury Note yields (and consequent spike in general interest rates throughout the economic complex).

Quantitative Easing thus has accomplished or contributed to accomplishing four things, intended or not, and directly or not, that can be affirmatively proven: 1) QE has artificially bolstered equity market valuations; 2) QE has allowed the U.S. to engage in deficit spending at artificially low costs (based on lower treasury yields); 3) QE has contributed to artifically low interest rates throughout the general economic complex (this is especially true for large multinational companies issuing corporate debt at record low rates), and; 4) QE, especially in concert with the ZIRP or near-ZIRP of the Fed, has acted as a catalyst for risk-on speculation in alternative asset classes, such as commodities, which has fueled a dramatic (but arguable very inorganic) spike in the price of most commodities, as the lower yields on savings, bonds, treasuries and similar assets has been driven to rather unattractive levels.

As a result of the conditions laid out in 1 through 4 above, the organic economy has been thwarted from truly recovering, and in fact, price surges in commodities that are now trickling down to end users and consumers are creating at least some level of demand destruction, and hampering consumption. Job growth has been awful, as has wage and benefit growth accompanying that job growth, and in fact, more jobs are of a temporary and/or part time quality in the U.S. than any time since the BLS has recorded data. The housing market remains in a literal depression, and there is a literal tsunami of toxic residential, commercial, office and industrial properties that still is building and will be released for absorbtion, at some pace, with unknown but potentially very adverse consequences. Government transfer payments such as Medicare, SNAP, Social Security, as well as growth is government sector employment and pay (at least until very recently), has prevented the types of scenes we would have seen by now, absent them, that we did in the 1930s.

Is there any portion of this so far that is fundamentally flawed in its analysis?


Wed, 05/25/2011 - 23:18 | 1311716 akak
akak's picture

TiS, aside from possibly your first two premises (I feel that inflation and deflation are both monetary AND political events, as our fiat currency is inherently and at all times under political control), I think you have made an excellent summation of the current, sad economic and monetary sitations.

Wed, 05/25/2011 - 23:25 | 1311769 Fiat2Zero
Fiat2Zero's picture

True inflation is probably closer to 8% (shadowstats). Also, it will take 18-24 months for fed money creation to hit consumer prices in the form of inflation. This means we are just starting to get QE lite.

So the bulk of the chickens are just starting to come home to roost. Add in the increasing numbers of dollars from China and Japan (pension redemptions, rebuilding).

We should really just have this same argument in 6 months from now to see how that inflation is going...

Wed, 05/25/2011 - 23:31 | 1311779 WonderDawg
WonderDawg's picture

That is the most accurate, coherent, and concise analysis I've seen anywhere.

Wed, 05/25/2011 - 23:32 | 1311781 Calmyourself
Calmyourself's picture

Hyperinflation is not a political phenomenon it is a psychological occurence that spreads like wildfire as fiat is recognized for its true value. That said, a concise evaluation of past actions, where they take us is a psychological, political, mass media, black swan who the hell knows where the wheel stops roller coaster of fun future..

Wed, 05/25/2011 - 23:53 | 1311846 asdasmos
asdasmos's picture

Just some clarification needed:

"Quantitative Easing was drafted and implemented, at least in large part, in order to allow the Federal Reserve to monetize approximately 75% of U.S. Government deficit spending, and to allow Bernanke to artificially lower all portions of the interest rate yield curve, as the Fed has become the buyer of last resort of treasuries bearing artificially low yields. In other words, had the Fed not done so, more treasury auction failures would have surely occurred, and interest rates on treasuries and in the real economy would be at least somewhat higher than where they are now. Anyone disagree?"


While I do not disagree with this statement, I would like you to comment on the implications of this. If indeed the FED was needed to be the buyer of last resort through monetization with regards to QE, going forward, doesn't the FED still need to be?


ZIRP has indeed allowed the FED and the Treasury to fund the deficit (albeit ponzi-esque) at historic low rates, but hasn't this done something much worse? Even now the interest payments are substantial, what happens when they rise? (A debt spiral is fatal to the currency via inflation or to the bond market and/or eventually both)


Cut, they say? Well apparently the "Government transfer payments" (Medicare, SNAP, Social Security...etc...) is keeping this house of cards going. Yet these are the largest part of the federal budget, so they will not be cut (and even if they wanted to, they are mandatory no?). Enter the debt spiral.


If indeed, as you say, they are the buyer of last resort, won't they continue to monetize the deficits going forward? Where is the absortive capacity going to come from for all the future borrowings and the higher interest payments?


I am unsure. Won't they have to print more and more, eventually pushing inflation higher and higher?


Is this not an implication?

Thu, 05/26/2011 - 00:22 | 1311947 TruthInSunshine
TruthInSunshine's picture

I do not disagree with this.

I only claim that there is a tension building, and a point is nearing (some may feel it's already here - they'd be most likely to argue QEx won't happen; Jim Rickards has a good theory on this, claiming the Fed will use its existing balance sheet income to continue monetizing a chunk of the deficit, though ZH and I think his estimates of how much income they will receive and how much treasury monetization they can do is vastly overstated) whereby the Fed and Congress will be forced to continue to cooperate, with Congress and Obama potentially getting extreme popular pushback, or Congress will break away from the Fed (whether Obama will join Congress openly or in secret facing re-election if consumers and small businesses are still being pressed hard by high everyday prices amidst a stagnant or contracting economy is open for debate) because of political repercussions caused in large part by Federal Reserve monetary policy.

If Congress and/or Obama decide to change course, how will they accomplish this, given that absent significant cuts to the holy trifecta of Medicare-Social Security-Defense aren't possible or likely, especially in a run-up to an election?

I honestly don't know. One possibility, and this is definitely leaning heavily into the conspiracy direction (though I'm not opposed to leaning that way, necessarily), is to allow for the much talked about 'risk off' scenario to play out, whereby equities and commodities crash hard, and the assumption is that there'd be a rush of substitute buyers for U.S. treasury debt in another crisis period, at any yields, out of sheer desire to preserve capital.

And what would this scenario take to implement, assuming that I and many others are even somewhat correct in asserting that Bernanke is literally supporting equity markets (and goosing commdodity markets, albeit not by his own desires - it's complicating his life)?

In an incredibly ironic twist, firmly rejecting any possibility of further deficit monetization by the Federal Reserve could be the catalyst that crashes risk assets, and provides the stampede of substitute buyers of U.S. Treasury Debt that Bernanke would need to withdraw QE fully.

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