Hyperinflation

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.

Guest Post: Explaining Hyperinflation

The fact that naturally scarce currencies like gold do not hyperinflate — even in times of extreme economic stress — suggests that the underlying mechanism here is of an extreme exogenous event causing a severe drop in productivity. Governments then run the printing presses attempting to smooth over such problems — for instance in the Weimar Republic when workers in the occupied Ruhr region went on a general strike and the Weimar government continued to print money in order to pay them. While hyperinflation can in theory arise either out of either ?Q or ?M, government has no reason to inject a hyper-inflationary volume of money into an economy that still has access to global exports, that still produces sufficient levels of energy and agriculture to support its population, and that still has a functional infrastructure.  This means that the indicators for imminent hyperinflation are not economic so much as they are geopolitical — wars, trade breakdowns, energy crises, socio-political collapse, collapse in production, collapse in agriculture. While all such catastrophes have preexisting economic causes, a bad economic situation will not deteriorate into full-collapse and hyperinflation without a severe intervening physical breakdown.

 

Regime-On / Regime-Off As Oil Round-Trips Yesterday's Losses

Confirming that it is always the markets who make the news, especially when the news is explained by "world renowned commodity experts" who really are only long of newsletter sales in constantly wrong terms, yesterday's slide in oil was quickly and clinically "justified" with the near certainty that Iran's regime was on the verge of collapse following the local currency devaluation. We welcome these same "experts" to justify away why it is that the HFT algos which comprise over 30% of the CME's revenue have decided to send WTI right back to unchanged in yesterday terms. Because it would appear that today the Iranian regime is suddenly more entrenched than ever, and hyperinflation is actually a sure fire way to cement a so called dictator in his throne (as we said previously).

Fed Confused Reality Doesn't Conform To Its Economic Models, Shocked Its Models Predict "Explosive Inflation"

Below are several excerpts only the brains of those practicing the world's most useless profession (and we are very generous with that assessment) could possibly come up with, in attempting to explain the shocking outcome of reality continuously refusing to comply with their exhaustive and comprehensive Dynamic Stochastic General Equilibrium models.

Given that policymakers seldom if ever experimented with forward guidance this far in the future, there is little data to guide them. The problem, however, is that these DSGE models appear to deliver unreasonably large responses of key macroeconomic variables to central bank  announcements about future interest rates (a phenomenon we can call the "forward guidance puzzle")

But the absolute punchline you will never hear admitted or discussed anywhere else:

Carlstrom et al. show that the Smets and Wouters model would predict an explosive inflation and output if the short-term interest rate were pegged at the ZLB (Zero Lower Bound) between eight and nine quarters.This is an unsettling finding given that the current horizon of forward guidance by the FOMC is of at least eight quarters. 

In short: the Fed's DSGE models fail when applied in real life, they are unable to lead to the desired outcome and can't predict the outcome that does occur, and furthermore there is no way to test them except by enacting them in a way that consistently fails. But the kicker: the Fed's own model predicts that if the Fed does what it is currently doing, the result would be "explosive inflation."

Guest Post: Hyperinflation Has Arrived In Iran

Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, we estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation. The rial’s death spiral is wiping out the currency’s purchasing power

IMF Brings Good Tidings: Prepare For Another Lost Decade

"It will surely take at least a decade... for the world economy to get back to decent shape" is the somewhat shockingly honest (and at the same time hopeful that ECOpocalypse does not happen before) outlook that the IMF's Olivier Blanchard offers in a recent interview with Hungary's Portfolio.ru via Reuters. His diatribe of expectations that Germany would have to accept higher inflation, the US had to fix its fiscal problem, "Japan is facing a very difficult fiscal adjustment too" is more an understatement of facts than a forecast but on the bright-side he thinks China has turned the corner on its asset boom (but faces slower growth ahead). The reality is that, as he also notes, debt reduction (via default or deleveraging) is unavoidable and while he believes that this can be done without stifling growth in this credit-fueled world in which we have lived (though no mention of the tooth fairy). Dismissing the idea of inflation-targeting, he warns "You can have an economy in which inflation is stable and low, but behind the scenes the composition of the output is wrong, and the financial system accumulates risks." It seems the IMF is waking to the new reality - perhaps as evidenced by their actual disagreement with Greece over fantasy GDP data - though we fear what another decade of this will do to global instability.

From Currency Debasement To Social Collapse: 4 Case Studies

At its most fundamental level, SocGen's Dylan Grice notes that economic activity is no more than an exchange between strangers. It depends, therefore, on a degree of trust between strangers. Since money is the agent of exchange, it is the agent of trust. Debasing money therefore debases trust. Grice emphasizes that history is replete with Great Disorders in which social cohesion has been undermined by currency debasements. The multi-decade credit inflation can now be seen to have had similarly corrosive effects. Yet central banks continue down the same route. The writing is on the wall. Further debasement of money will cause further debasement of society. Dylan, like us, fears a Great Disorder.

Guest Post: On Risk Convergence, Over-Determined Systems, And Hyperinflation

To those familiar with Algebra, we suggest that the Ponzi scheme we live in is actually an overdetermined system, because there is no solution that will simultaneously cover all the financial and non-financial imbalances of practically any currency zone on the planet. Precisely this limitation is the driver of the many growing confrontations we see: In the Middle East, in the South China Sea, in Europe and soon too, in North America. That these tensions further develop into full-fledged war is not a tail risk. The tail risk is indeed the reverse: The tail risk is that these confrontations do not further develop into wars, given the overdetermination of the system! We have noticed of late that there’s a debate on whether or not the US dollar zone will end in hyperinflation and whether or not the world can again embrace the gold standard. The fact that we are still in the early chapters of this story does not allow us to state that hyperinflation is only a tail risk. The tail risk is (again) the reverse: That all the steps central banks took since 2008 won’t lead to spiraling quasi-fiscal deficits.

Santelli On QEternity: "Deflation Vacation Or Inflation Gestation"

With gold being horded in Iran and hitting 2012 highs this morning, CNBC's Rick Santelli addresses the 800lb gorilla in the Fed's room - the threat of inflation. Critically noting that the hyperinflation of Weimar Germany "did not happen overnight" but was gestated quietly until it was unstoppable by currency debasement; the question remains of what exactly the Fed thinks it is doing. Santelli makes the important point that if we look at 'printing money' as any type of solution then why not take it to the extreme - "if we just print a million dollars for every man, woman and child and handed it to them, wouldn't that fix everything?" As he adds "if it was that easy there would be no need for economist, no need for even CNBC, but it isn't that easy," Reflecting on Evans' earlier inability to quantify any metrics for whether QEternity was working, Santelli notes that the Fed man falls back to 'confidence' (animal spirits) but worries that inflation is a lot like soybeans; need sun, water, and time but eventually will grow rapidly.

Phoenix Capital Research's picture

 

Let me be clear: if US Treasuries collapse, then the US has lost credibility in the global markets and we’re going to face a currency Crisis. I am not saying that this will happen right now. Europe could always implode first, buying the US some time. But at some point the US debt situation will lead to a Crisis. And the Fed is pushing us ever closer to this with QE 3.

 

Guest Post: Netanyahu’s Red Line

Iran is not blameless, and continues to provoke Israel through its support for Hamas and Hezbollah and through eliminationist rhetoric. But given the level of provocation from the Israeli and American side, it is astonishing that Iran remains free of nuclear weapons. Yet it is a fact that Iran is not armed with nuclear weapons, and it remains a fact that Iran has not attacked nor occupied any foreign lands since World War 2. Iran is not an expansionistic country. As neocon provocateur Patrick Clawson essentially admitted in advocating for a false flag attack to get America to war, Iran is not likely to attack either the United States or Israel. So when it comes to drawing red lines, we in the West would do well to draw a red line around our behaviour — because right now, we in the West are the ones who are stirring up trouble by threatening to strike first.

$35 Billion In Two Year Bonds Price Unchanged From August

Since any debt issued under 3 years during ZIRP (i.e., in perpetuity) is nothing more than a cash for cash exchange, only with the conversion of counterparty risk from unsecured bank obligations (if cash outflow is from deposits) into Uncle Sam exposure, it is no surprise that today's 2 year bond auction was a snoozer. Sure enough, the just auctioned off $35 billion in 2 year bonds came at a nominal yield of 0.273%, precisely where it was last month, with investors getting a nominal yield in the off chance that Bernanke loses all control of the curve and hyperinflation arrives in under 730 days. For now this probability appears minimal. The internals were just as boring. a 3.6 bid to cover, lower than last month's 3.94, and below the TTM average of 3.77. Directs took down 17.5%, Indirects 27.27% and Dealers were stuck holding 55.33% of the same bonds that Bernanke will be selling to them soon too, resulting in a PD inventory in the 1-3 year window near all time highs. And following the balance of this week's auctions, which include a 5 and 7 year bond for a total of $99 billion in gross issuance, net US debt will rise by $46.8 billion, which together with an earlier net addition of $13 billion in debt, will take total US debt to just shy of $16.1 trillion.