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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DK Delta's picture

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

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.

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. 

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?

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.

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).

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".

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?

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).

tarsubil's picture

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

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.

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.

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.

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.

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.

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.

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.

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.

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. 

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). 

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.

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.

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?



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.


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.


DK Delta's picture

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

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.


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.


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.

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.

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.

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.

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.

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?


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. 

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. 

sullymandias's picture

I love these one word per line comments.

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?

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.

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?

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.

asdasmos's picture

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



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 woman...at 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.      

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.

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.

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?








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.

sullymandias's picture

you can't have hyperinflation without deflation first.

That was in 2008, right?