Hyperinflation

Bernanke Set To Unveil Number Larger Than "Eternity"

It was just over a month ago that the Chairsatan formalized the incorrect named QE 3, aka the open-ended QEternity, whose purpose, for now, was to increase the Fed's balance sheet by $40 billion/month in new MBS purchases. Well, according to MarketWatch, whose previously unheard of Greg Robb is seemingly vying for the role of Jon Hilsenrath, Ben Shalom is preparing to unveil a number bigger than eternity: " After historic changes last month, Federal Reserve officials this week will discuss a possible expansion of the size of its third round of bond buying and better ways to guide markets about future policy actions." Just because $40 billion per month in new flow is apparently not enough, and because the market is now well below the level it was when "QE 3" was announced.

Guest Post: The Mechanics Of Transitioning To The Gold Standard... And Why It Won't Happen

In what follows, we will examine the adjustment process necessary to shift from a system with fiat money and a reserve ratio below 1 (reserve requirement under 100%). Let’s begin clarifying that this proposed delevering process is an ideal situation, applicable if one had the luxury of planning the shift. There is not always time to do so and, if we ever had any, we’re running out of it pretty fast. The adjustment process below could only be done very gradually, by adjusting the reserve requirement and gold holdings by the central bank a few bps every year (say 200bps). The ultra-necessary condition here is that the nation undergoing this process be able to generate an equivalent fiscal surplus, in percentage terms. For instance, the process could demand to cover 2% per year of the gap in the reserve ratio to reach 1 (50 years long!!!). This means that if the reserve ratio is 10%, the gap is 90% and narrowing it over 50 years would require to increase reserves by 1.8% every year (90%/50). Because the delevering process should be accompanied by a pari passu reduction in the fiscal deficit and sovereign debt, that 2% annual adjustment, in the US, this would require a surplus of $324BN every year, over 50 years ($16.2 trillion in national debt x 2%). In 2012 terms, spending would have to be cut by $1.52 trillion ($324 billion + $1.2 trillion annual deficit), if the numbers we have are correct. We suspect they are not: The situation is even worse. But, the bottom line is that, once you see these numbers, you realize that going back to a world of no leverage is politically impossible. Even though it is technically feasible, just like the European Monetary Union was planned and built over decades, it is still politically impossible.

Guest Post: Should Central Banks Cancel Government Debt?

Readers may recall that Ron Paul once surprised everyone with a seemingly very elegant proposal to bring the debt ceiling wrangle to a close. If you're all so worried about the federal deficit and the debt ceiling, so Paul asked, then why doesn't the treasury simply cancel the treasury bonds held by the Fed? After all, the Fed is a government organization as well, so it could well be argued that the government literally owes the money to itself. He even introduced a bill which if adopted, would have led to the cancellation of $1.6 trillion in federal debt held by the Fed. Of course the proposal was not really meant to be taken serious: rather, it was meant to highlight the absurdities of the modern-day monetary system. In a way, we would actually not necessarily be entirely inimical to the idea, for similar reasons Ron Paul had in mind:  it would no doubt speed up the inevitable demise of the fiat money system. Control can be lost, and it usually happens only after a considerable period of time during which their interventions appear to have no ill effects if looked at only superficially: “Thus we learn….to be ignorant of political economy is to allow ourselves to be dazzled by the immediate effect of a phenomenon."

Head Of Zimbabwe Central Bank Explains QE3

Gideon Gono, the governor of the Reserve Bank of Zimbabwe who destroyed the Zim dollar by creating hyperinflation, weighs in on the parallels between QE3 and the policy he followed last decade, in the RBZ’s mid-term 2012 monetary policy statement. Even though Ben Bernanke and Mario Draghi and all other central bankers will try to convince you that what they are doing are really different to what Gideon Gono did, you should really be taking Gideon Gono more seriously, who is basically admitting that the money printing strategy does not work to ‘stimulate’ growth. All it can stimulate are high- and hyperinflation risks.

Guest Post: Let's Talk About Facts, Not Fear

Let’s step away from the noise for a moment and look at the big picture. This isn’t about doom and gloom, or fear, but objective facts. Undoubtedly, the Western hierarchy dominated by the United States is in a completely unsustainable situation. Across the West, national governments have obligations they simply cannot meet—both to their citizens and their creditors. Once again, this is not the first time history has seen such conditions. In our own lifetimes, we’ve seen the collapse of the Soviet Empire, the tragi-comical hyperinflation in Zimbabwe, and the unraveling of Argentina’s millennial crisis. Plus we can study what happened when empires from the past collapsed. The conditions are nearly identical. Is our civilization so different that we are immune to the consequences?
However, one of the things that we see frequently in history is that this transition occurs gradually, then very rapidly.

 

Cashin Remembers Germany's Hyperinflation Birthday

UBS' Art Cashin provides the clearest 'simile' for our current economic malaise as he remembers back 90 years... On this day in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money. But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity). Think it can't happen here? read on...

Woods & Murphy Refute 11 Myths About The Fed

The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About the Federal Reserve.” And you’ll never guess: these aren’t lies or myths spread in the financial press by Fed apologists. These are “lies” being told by you and me, opponents of the Fed. Bonnie Kavoussi calls us “Fed-haters.” So she, a Fed-lover, is at pains to correct these alleged misconceptions. She must stop us stupid ingrates from poisoning our countrymen’s minds against this benevolent array of experts innocently pursuing economic stability. Here are the 11 so-called lies (she calls them “myths” in the actual rendering), and Tom Woods and Bob Murphy's responses.

Guest Post: Why A Gold Standard, Alone, Is Not Enough

We have lately noticed that there is an ongoing debate on whether (or not) the world can again embrace the gold standard. We join the debate today, with an historical as well as technical perspective. The gold standard will be the last option: If adopted, it will be out of necessity and in desperation. We are not historians. In our limited knowledge, we note however that historically, the experiment of adopting a gold standard –or a currency board system- was usually preceded by extremely trying moments, including the loss by a government of its legal tender amidst hyperinflation. The change to a commodity standard has often been then out of necessity. In summary, the Argentine case and the Dutch Golden Age suggest that the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency.

Gold In Iran Soars By 23% In One Week As All Currency Transaction Tracking Disappears

Just over a week ago we we were the first to shed light on the reality of hyperinflation on the ground in Iran - and subtley suggested the whole thing could be watched in real-time. Soon after, a mysterious cabal of 16 currency manipulators was arrested and the Rial jumped dramatically higher (according to official sources) - as if by magic there was no problem at all. This all sounded a little too good to be true (just like unemployment rates in slightly more controlled economies). Sure enough, by the power of social media, we now know it was too good to be true.

Guest Post: Gold And Triffin's Dilemma

We have mentioned the little-known Belgian economist's works a couple of times previously (here and here) with regard his exposing the serious flaws in the Bretton Woods monetary system and perfectly predicting it's inevitable demise. Triffin's 'Dilemma' was that when one nation's currency also becomes the world's reserve asset, eventually domestic and international monetary objectives diverge. Have you ever wondered how it's possible that the USA has run a trade deficit for 37 consecutive years? Have you ever considered the consequences on the value of your Dollar denominated assets if it eventually becomes an unacceptable form of payment to our trading partners? Thankfully for those of us trying to navigate the current financial morass, Robert Triffin did. Triffin's endgame is simple. A rapid diversification of reserves out of the dollar by foreign central banks. The blueprint for this alternative has been in plain sight since the late 1990's, and if you watch what central banks do – not what they say – you can benefit.

 

Amplats Refuses To Follow In Lonmin's Footsteps, Fires 12,000 Striking South African Workers

Several weeks ago, the platinum producing company that started it all (after police killed 34 of its striking workers at its Marikana South African mine) Lonmin, conceded and agreed to a 22% wage hike. In doing so it once again proved that in game theory he who defects first, defects best. Shortly thereafter the strike spread to all other South African mining industries, and has even spilled over into the trucking industry, whose ongoing strike has crippled the country and threatens to paralyze all commerce. The only reason for the continued worker boldness: Lonmin folding to worker demands, in the process empowering all other workers in the African country to demand equitable treatment. Which is why today's news that that "other" platinum miner in South Africa has decided to go the opposite route, and instead of yielding to worker demands for a raise, has gone and fired 12,000 workers taking part in a three-week strike. How this dramatic shift in the balance of power affects the already struggling country, and its mining sector remains to be seen. However, if recent events are any indication, he doubt local workers will just put down their banners and go back to work as per the old status quo. In the meantime, look for ever less platinum,and gold, to be produced by this mining powerhouse.