Hyperinflation

Tyler Durden's picture

Guest Post: The Final Countdown





One reason for the severity of the financial crisis, and the losses incurred by banks, is that bankers and financial analysts were using linear tools in a non-linear, highly complex environment otherwise known as the financial markets.The models didn’t work. The problem we face now as investors will end up being existential for some banking institutions and sovereigns. Our (uncontentious) core thesis is that throughout the west, more debt has been accumulated over the past four decades than can ever be paid back. The question, effectively to be determined on a case-by-case basis, is whether bondholders are handed outright default (which looks increasingly like the case to come in Greece) or whether the authorities, in their understandable but misguided attempts to keep the show on the road, resort to a policy of inflation that could at some point easily spiral out of control. As Rothbard wrote, “The longer the inflationary boom continues, the more painful and severe will be the necessary adjustment process… the boom cannot continue indefinitely, because eventually the public awakens to the governmental policy of permanent inflation, and flees from money into goods, making its purchases while [the currency] is worth more than it will be in future.” “The result will be a ‘runaway’ or hyperinflation, so familiar to history, and particularly to the modern world. Hyperinflation, on any count, is far worse than any depression: it destroys the currency – the lifeblood of the economy; it ruins and shatters the middle class and all ‘fixed income groups;’ it wreaks havoc unbounded… To avoid such a calamity, then, credit expansion must stop sometime, and this will bring a depression into being.”

 

 
Tyler Durden's picture

Guest Post: Another Reminder Of How The US Government Destroys Business





One of the most phenomenal human beings I’ve ever met hails from Harare, Zimbabwe of all places. His name is Time. That’s seriously his name. When you ask him about it, he shrugs, grins, and says,  “My mom felt that she was in labor for way too long.” Time is a real Sovereign Man. He understands that his family comes first and foremost above all else, and growing up under the regime of Robert Mugabe, he had to get very creative in order to support his loved ones. By the time he was 15-years old, Time could see the writing on the wall. Mugabe had all but destroyed the market and private property rights, and Time knew there would be absolutely no prospects for him in Zimbabwe. So what did he do? He learned a valuable skill and looked beyond his own borders for the best opportunities. He spent years in the wilderness living with the native bushmen learning how to track animals. He worked diligently to improve his English. He read everything he could get his hands on about botany.

 
Phoenix Capital Research's picture

Graham Summers’ Weekly Market Forecast (Has the Can Hit the Wall? Edition)






Truthfully the only reason to be long stocks right now is in anticipation of more QE from the Fed at its January 25 FOMC meeting. However, the likelihood of more QE being announced at that time is slim to none. For starters, interest rates are already at record lows, so the Fed cannot use that excuse. Secondly the latest economic data out of the US, while heavily massaged, is showing some signs of improvement, which negates the need for more QE. And finally, Bernanke and the Fed are far too politically toxic for the Fed to begin another massive round of QE (the last one of $600 billion accomplished nothing) just for the sake of it.

 
Tyler Durden's picture

Toscafund: "Greece Exit Would Provoke European Social Unrest, Hyperinflation, And A Military Coup"





And here we are thinking we were bearish. As it turns out, compared to London hedge fund Toscafund we are rank amateurs. Reuters reports: "A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund. In a stark note to clients, chief economist Savvas Savouri said introducing a new currency instantaneously in the wake of a euro exit would be impossible and the delay would lead to "a run on banks and evacuation of capital that would make what has already been seen as nothing by comparison". "The word catastrophic would not do it justice enough," said Savouri, who comes from a Greek Cypriot background. "Those who imagine some post-euro-exit stability would be restored ... quite simply fail to understand the magnitude -- social, economic and political -- of such an eventuality."" Well, at least he is objective... and tells us how he really feels.

 
Tyler Durden's picture

Guest Post: Iran: Oh, No; Not Again





In each of the years 2008, 2009, and 2010, significant worries emerged that Western nations might attack Iran. Here again in 2012, similar concerns are once again at the surface. Why revisit this topic again? Simply because if actions against Iran trigger a shutdown of the Strait of Hormuz, through which 40% of the world's daily sea-borne oil passes, oil prices will spike, the world's teetering economy will slump, and the arrival of the next financial emergency will be hastened. Even if the strait remains open but Iran is blocked from being an oil exporter for a period of time, it bears mentioning that Iran is the third largest exporter of oil in the world after Saudi Arabia and Russia. Once again, I am deeply confused as to the timing of the perception of an Iranian threat, right now at this critical moment of economic weakness. The very last thing the world economies need is a vastly increased price for oil, which is precisely what a war with Iran will deliver. Let me back up. The US has already committed acts of war against Iran, though no formal declaration of war has yet been made. At least if Iran had violated US airspace with stealth drones and then signed into law the equivalent of the recent US bill that will freeze any and all financial institutions that deal with Iran out of US financial markets, we could be quite confident that these would be perceived as acts of war against the US by Iran. And rightly so.

 
Tyler Durden's picture

Iran Interest Rates Raised To 20% To Fight Hyperinflation; Iran Nuclear Scientist Killed In Street Bomb Explosion





Yesterday we reported how as a result of a financial embargo enacted on by the US on New Year's Day, Iran's economy had promptly entered freefall mode and is now experiencing hyperinflation as the currency implodes. Today EA WorldNews gives us the response, which confirms that indeed the economy is in terminal shape following an interest rate hike to 20%. From the Source: "State news agency IRNA has no news on the Iranian currency this morning, but it does feature an interview with an official, noting the rise in interest rates to 20%. The effort is to reduce the flow of cash in the economy, but the official says it will increase capital investment by banks in an "impressive market"." As noted before, every incremental creep worse in the status quo merely makes the probability of escalation higher due to a lower opportunity cost of "irrationality" although we hope we are wrong. And in other unreported so far news, EA also informs us that in a street bomb explosion in Tehran earlier, one Mostafa Ahmadi Roshan, deputy head of procurement at the Natanz uranium enrichment facility, was killed. Are predator drones now patrolling over the Iran capital? Who knows, but Iran is already spinning the news.

 
Tyler Durden's picture

Hyperinflation Comes To Iran





Hyperinflation has struck again, this time at ground zero of the most sensitive geopolitical conflict in ages: Iran. EA WorldView reports:

An EA source reports that a relative in Tehran ordered a washing machine for 400,000 Toman (about $240) this week. When he went to the shop the next day, he was told that --- amidst the currency crisis and rising import costs --- the price was now 800,000 Toman (about $480). Another EA source says that the price of an item of software for a laptop computer has tripled from 50,000 Toman to 150,000 Toman within days.

And so the opportunity cost for the Ahmedinejad regime to preserve its status quo gradually grinds to zero, as the entire economy implodes (courtesy of a few strategic financially isolating decisions) making further escalation virtually inevitable, in a 100% replica of the US-planned Japanese escalation that led to the Pearl Harbor attack, and gave America the green light to enter the war.

 
Tyler Durden's picture

Hyperdeflation Vs Hyperinflation: An Exercise In Centrally Planned Chaos Theory





One of the recurring analogues we have used in the past to describe the centrally planned farce that capital markets have become and the global economy in general has been one of a increasingly chaotic sine wave with ever greater amplitude and ever higher frequency (shorter wavelength). By definition, the greater the central intervention, the bigger the dampening or promoting effect, as central banks attempt to mute or enhance a given wave leg. As a result, each oscillation becomes ever more acute, ever more chaotic, and increasingly more unpredictable. And with "Austrian" analytics becoming increasingly dominant, i.e., how much money on the margin is entering or leaving the closed monetary system at any given moment, the same analysis can be drawn out to the primary driver of virtually everything: the inflation-vs-deflation debate. This in turn is why we are increasingly convinced that as the system gets caught in an ever more rapid round trip scramble peak deflation to peak inflation (and vice versa) so the ever more desperate central planners will have no choice but to ultimately throw the kitchen sink at the massive deflationary problem - because after all it is their prerogative to spur inflation, and will do as at any cost - a process which will culminate with the only possible outcome: terminal currency debasement as the Chaotic monetary swings finally become uncontrollable. Ironically, the reason why bring this up is an essay by Pimco's Neel Kashkari titled simply enough: "Chaos Theory" which looks at unfolding events precisely in the very same light, and whose observations we agree with entirely. Furthermore, since he lays it out more coherently, we present it in its entirety below. His conclusion, especially as pertains to the ubiquitous inflation-deflation debate however, is worth nothing upfront: "I believe societies will in the end choose inflation because it is the less painful option for the largest number of its citizens. I am hopeful central banks will be effective in preventing runaway inflation. But it is going to be a long, bumpy journey until the destination becomes clear. This equity market is best for long-term investors who can withstand extended volatility. Day traders beware: chaos is here to stay for the foreseeable future." Unfortunately, we are far less optimistic that the very same central bankers who have blundered in virtually everything, will succeed this one time. But, for the sake of the status quo, one can hope...

 
Tyler Durden's picture

The Bluffing Resumes: Greece Warns Will Leave Eurozone If Second Bailout Not Secured





First Morgan Stanley issued the first market forecast of 2012 before the market has even opened, and now it is Greece's turn to threaten fire and brimstone (aka to leave the Eurozone, but according to UBS and everyone else in the status quo the two are synonymous) within hours of the New Year, if the second bailout, which as far as we recall was arranged back in July 2011, is not secured. Quote the BBC: ""The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro," spokesman Pantelis Kapsis told Skai TV." And cue several million furious Germans and tomorrow's German newspaper headlines telling Greece bon voyage on its own as it commences braving the treacherous waters of hyperinflation. In other news, the sequel to Catch 22 is in the works, and explains how Greek tax collectors (i.e., people who collect those all important taxes so very needed for government revenues) continues to strike. In it we also learn that the first strike of the year in Athens is already in place, with Greek doctors saying they will treat only emergency cases until Thursday, in protest at changes to healthcare provision. All in all, the complete collapse of the Greek debt slave society is proceeding just as planned.

 
Tyler Durden's picture

Iran Threatens Retaliation If US Carrier Returns To Persian Gulf, Where 5th Navy Is Stationed





Don't look now but oil is spiking as the market is finally realizing that the escalation in the Persian Gulf is more than just for show (which curiously was once again set off by Obama establishing a full financial embargo of all Iranian activity on New Year's Eve, leading the Rial to plunge to a new record low, and about to set a brand new scramble for physical gold in the country on the verge of hyperinflation). At last check WTI was up over $2.50 with the market realizing that either Dalio will be right (central banks going into overdrive) or the Iranian escalation will finally pass the trigger threshold, and Brent was over $110. Today's escalation, just as requested by the US, is not another missile launch but a threat by the Iran military to retaliate if the US carrier John Stennis were to once again cross the Straits of Hormuz and return to the Gulf. As a reminder, as of December 23, as was observed by Stratfor before the hacker takedown and reported here, the Stennis was within shouting distance. From Reuters: "Iran will take action if a U.S. aircraft carrier which left the area because of Iranian naval exercises returns to the Gulf, the state news agency quoted army chief Ataollah Salehi as saying on Tuesday. "Iran will not repeat its warning ... the enemy's carrier has been moved to the Sea of Oman because of our drill. I recommend and emphasise to the American carrier not to return to the Persian Gulf," Salehi told IRNA." Which is interesting because considering that the 5th Navy is stationed in Bahrain, i.e., deep in the Gulf, there is no way that the Stennis or other carriers will not come back, meaning what is likely the terminal escalation has now been set in motion.

 
Tyler Durden's picture

There Is No Joy In Muddlethroughville: World's Biggest Hedge Fund Is Bearish For 2012 Through 2028, And Is Long Gold





That Ray Dalio, famed head of the world's largest (and not one hit wonder unlike certain others) hedge fund has long been quite bearishly inclined has been no secret. For anyone who missed Dalio's must see interview (and transcript) with Charlie Rose we urge you to read this: "Dalio: "There Are No More Tools In The Tool Kit." For everyone who is too lazy to watch the whole thing, or read the transcript, the WSJ reminds us once again that going into 2012 Dalio's Bridgewater, which may as well rename itself Bearwater, has not changed its tune. In fact the CT hedge fund continues to see what we noted back in September is the greatest threat to the modern financial system: a debt overhang so large, at roughly $21 trillion, that one of 3 things will have to happen: a global debt restructuring/repudiation; global hyperinflation to inflate away this debt, or a one-time financial tax on all individuals amounting to roughly 30% of all wealth. That's pretty much it, at least according to mathematics. And according to Bridgewater. From the WSJ: "Bridgewater Associates has made big money for investors in recent years by staying bearish on much of the global economy. As the new year rings in, the hedge fund firm has no plans to change that gloomy view...What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular deleveraging that will probably take 15 to 20 years to work through and we're just four years in." So basically scratch everything between 2012 and 2028? But, but, it was that paragon of investment insight Jim "Bloody Ridiculous Investment Concept" O'Neill keeps telling us stocks will go up by 20%... stocks will go up by 20%....stocks will go up by 20%...

 
Tyler Durden's picture

Guest Post: Europe Needs Debt Relief And Structural Reforms, Not Hyperinflation





The current governments in place in Italy and Greece are puppets of the banking system, making sure that countries do not default and pay as much interest for as long as possible by implementing short term austerity measures. This is not the type of technocratic government these countries need. They need a technocratic government that sees that the current debt burden is unsustainable and cannot be serviced, acknowledging that defaults are necessary. They should seize this opportunity to change the financial system and implement structural reforms, while exercising their powers to facilitate orderly defaults for both governments and household debt. This way countries will be able to start from a situation where there is breathing room to implement much needed structural reforms throughout society.

 
Tyler Durden's picture

Actually The ECB Has Already Handed Out €1 Trillion; And Why Germany Equates ECB Printing With Hyperinflation





For anyone who thinks that the ECB is some pristine virgin which has barely been touched in that special monetary printing place, we, or rather JP Morgan's Michael Cembalest, has some news for you: "To-date, that’s what the ECB has done: of the 1.1 trillion Euros extended to European banks and governments (through sovereign/covered bond purchases and repo), 970 billion has been given by the ECB." So anyone demanding that the ECB print even more outright (which incidentally we are certain will eventually happen - our thoughts are identical to those of Dylan Grice from two months ago: "ECBCTRL+P: The Next Steps In The European Implosion") should probably keep this in mind. It will also explain why German members of the ECB are dropping like flies, and why Germany, which better than anyone else, most certainly proponents of modern reincarnations of failed Keynesianism, knows what happens when central banks have gone wild, is certain that the ECB proceeding to move from €1 to many, many more trillions of explicit monetary support, will mean nothing short of hyperinflation.

 
Tyler Durden's picture

ECB's Weidmann Spoils The Party: Says Leveraging EFSF Violation Of EU Treaty, Warns Of Hyperinflation





Trust the Germans in the ECB (those who have not yet resigned that is) in this case Jesn Weidmann, to come in and spoil the party:

  • Weidmann, speaking in Berlin, says hyperinflation shows why monetizing debt wrong
  • Prohibition on monetary financing an important achievement.
  • Euro treaty rightly forbids monetary financing
  • Stable prices should be key goal of ECB
  • Leveraging EFSF with currency reserves prohibited
  • Says monetary analysis may gain importance at ECB

And for all our MMT friends:

  • "One of the severest forms of monetary policy being roped in for fiscal purposes is monetary financing, in colloquial terms also known as the financing of public debt via the money printing press:” Weidmann
  • Pohibition of monetary financing in the euro area “is one of the most important achievements in central banking” and "specifically for Germany, it is also a key lesson from the experience of hyperinflation after World War I"
 
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