Hyperinflation: Niall Ferguson vs. Chris Martenson; Reminiscences of a NYSE Floor Trader

EB's picture

It's been a long time, kids!  But, EB's back and he has a new gig: television.  While we don't watch it (personally), we don't hesitate to make it.  Here's what's went down over the last two days...

Day 1: We sat down with Niall Ferguson and asked him about the hyperinflationary potential (1:56) of our current monetary situation.  Here's what he had to say. Hint: excess reserves don't matter :-<

At 14:42, we interviewed floor trader Ben Willis about the diminishing role of the sapien-trader-entity.  We get into HFT, the Flash Crash and Knight Capital.  Judge for yourself if Reg NMS (LMNOP?) destroyed our markets.

Day 2: Chris Martenson weighs in on the FOMC meeting and current market conditions. "[I]f [our present markets don't] look, smell and taste like a liquidity crisis a la 2008, I don't know what does."  Indeed, Chris.  There's also an interview with Adam Lebor about secret banker meetings in Basel.  

Finally, at 18:52, the lovely Justine Underhill...

...digs into our 2009 paper, "A Grand Unified Theory of Market Manipulation" and explains the mystical "POMO Effect" -- yes, the means by which the Fed has magically levitated the S&P 500 to 15k+ (three times a charm, Ben). Unfortunately, she "tin-foils" our 2009 claim that:

"Once long term yields reach a critical Level (which we
cannot know
 and would be difficult to
estimate [and we have still not reached, obviously]), the [Federal Reserve] becomes
locked in a money printing cycle that will ultimately become hyperinflationary
and result in the [Federal Reserve] having to buy every US Bond, Note and Bill
in order to prevent the economic Armageddon that comes with a panicked exodus
from the US debt and currency."


We stand by it, Justine.


EB (Bob) 

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TallDog83's picture

Niall is operating under false premises. He assumes that we can add up all these excess reserves ad infinitum and they won't some day explode should money velocity accelerate. That's like saying we're going to keep dousing the house with gasoline, but don't worry, I don't see any matches. Nothing happening here...we can just keep on pouring!

He also gives Ben Bernanke way too much credit for avoiding a crisis but no blame for getting us in one in the first place. Nial reeks of double standard and status quo economics voodoo.

moneybots's picture

"Who the next president is really will matter next time."


That's what they say every time.

neutrinoman's picture

Hyperinflation is possible, but very unlikely at this point. The money multiplier has bottomed and risen a bit. But money velocity is still falling.

After the next recession, in the next credit cycle, we could very well see a pick up in V. Then inflation will pick up, although hyperinflation is still unlikely.

The main prop of low rates under Fed control is ZIRP, not QE. QE tends to put downward pressure on bond prices. What happened in the last QE cycle is that speculative players (like hedge funds) got into USTs. This has led to a sell-off. But as the risk asset world corrects and financial stress rises in the EMs, the UST prices will rise again, probably sharply, as they did in 2011.

These hedge funds are full of what people with little experience in fixed income markets, being oriented around riskier assets. Some of them might be politely called "amateur macroeconomists." These are the ones raving on about hyperinflation. Many of them confuse QE with ZIRP, which won't come off for at least another 2-2.5 years.

The larger determinant of interest rates is money velocity, and that is still falling.

Niall Ferguon is right -- no hyperinflation in the foreseeable future.

And yes, Julie Underhill is lovely ;-)

EB's picture

"The main prop of low rates under Fed control is ZIRP, not QE."

This is a common source of confusion.  Just how exactly is [near-]ZIRP maintained?  Once the Fed starts "tapir"ing, if short term interest rates rise, the Fed will be forced to maintain the Fed Funds target range (of zero to 25 bps) by conducting asset purchases again -- though they will likely be temporary (TOMOs).  

You simply cannot separate asset purchases from interest rate targeting.  That's why Bernanke is full of ...

mademesmile's picture

Here's a great example. Aldi's has 2 kinds of juice that's in 16, 8 ounce containers, prepackaged for lunch sized portions. One is $2.39 and the other is $12.99 - the first is water, corn syrup, flavor and dye, the second is 100% juice.

Most people buy the corn syrup drink in place of real juice - whereas 30 years ago that was not an option. And 30 years ago you would not dream of paying $13 for juice.


muleskinner's picture

Niall Ferguson is one dumbass who doesn't know he is one dumbass, but good for him anyway.  Another stupid Old Adam.

Gold at 1300 is hyperinflation and you can't tell me it isn't.

In 1961 a hamburger was 10 cents at a fast food burger place and it was a decent burger.

It was easy to buy a burger back then and it wasn't filled with shit like those you buy today from those fast food places.

It was easy to have one thin silver dime and it actually bought something.  When you need 20 dimes to equal one silver dime, it is hyperinflation.

A burger is a dollar and thirty cents or something in that price range and you don't want to eat it.

We're hyperinflated when you can't buy a burger for a dime and it tastes just like shit.

Cupro-nickel-steel coinage and fiat paper makes your economy turn into a piece of shit.

Minted silver coin in CIRCULATION translates to a healthy economy, not one turned to complete shit by the powers.

Life is just a shit sandwich and every day I take another bite.

withglee's picture

In 1960 I could buy a gallon of gas for $0.19 (and get dishes and trading stamps to boot). Today (54 years later) it costs about $3.39 or about 18 times as much. An inflation rate of just 5.48% will produce such magnification. 5.48% is far from hyperinflation. In fact, since 1913 inflation has averaged about 4% per year. Hamburgers didn't cost $0.10 in 1960. They cost $0.25 for a regular burger and $0.29 for a so-called steak burger. Then McDonalds came out with a $0.15 hamburger (considerably smaller) and a $0.19 cheeseburger. That $0.04 difference for cheese is now about $0.50.

We don't have hyperinflation yet, but we will as soon as they quit diddling the inflation meter. You can't become the buyer of $1T in bonds in a year (using just the printing press) and not have a severe effect on other traders in the system.

What we need is proper management of the medium of exchange (MOE). The world has never seen proper MOE management. It looks like this:

Proper management of any Medium of Exchange (MOE)
Money is “a promise to complete a trade”. This is obvious by studying its genesis as an efficient improvement over simple barter. Look at barter. In a trade, at the instant a good moves from one hand to another there is an open promise to complete a trade. The instant before, it is a trading promise in the making. The instant after it is a promise kept.
All that money does is allow that promise to occur at different times; over different periods; at different places; and with intermediate trades. These promises (called loans) are “certified” and then take on value themselves. The certificates are freely traded and called money. When the trade is completed, the trading promise is extinguished. The certificates (money) representing it are returned and extinguished with it.

Again ... money is "a promise to complete a trade".

Characteristics of a properly managed MOE:
  o INFLATION is zero at all times and in all places
  o The time value of money is always zero (same as above)
  o Money is in free supply at all times and in all places
  o Supply and demand for money are always in perfect balance
  o Money circulates freely and is universally accepted
  o Responsible traders enjoy zero INTEREST
  o Irresponsible traders pay INTEREST ... it's an actuarial issue
  o Traders, not governments, determine the value of money
  o No capital what-so-ever is required
  o There is no commodity, precious or otherwise, backing the currency
  o There are no runs on banks
  o There is no business cycle
  o There are no bubbles
  o Saving and hoarding have no effect on the economy
  o No cascading effects
  o No marking to market
  o No inflation measurements or estimates
  o No price measurements or estimates

To properly manage any Medium of Exchange (MOE), the controlling relation is:


Proper management entails:
  o measuring DEFAULTS on trading promises
  o collecting INTEREST equal to DEFAULTS experienced
  o thus maintaining INFLATION at zero for all time and in all places
  o assuring a free supply of certificates for trading promises at all times in all places

It is the marketplace, not capital or commodities, that backs money (promises to complete trades). And it is precise management of defaults and interest collections that give the responsive negative feedback assuring stability and integrity in the marketplace.

Money is debt, that is true … but that is not a bad thing any more than making a trading promise is a bad thing. Gold, silver, and any other good is not money. It is simply a good exchanged in simple barter.

Governments are just regular traders. And rolled over debt is DEFAULTed debt. Thus, in such a system, current government financing is impossible. Their INTEREST would be infinite since they "never" repay their borrowings.

Todd Marshall


Quinvarius's picture

Excess reserves of this magnitude are not simply inflationary.  They are Hyper-Inflationary.  Why would you continue to hold Dollars or have faith in them, when you know there is a giant cabal of whales that have TRILLIONS of them they are waiting to spend.  You just know they are going come an implode your purchasing power at will.  Faith is belief in the future outcome.  I have zero faith in the USD's purchasing power going forward.  So if hyperinflation is losing faith in the future purchasing power of a currency, I guess I am an early adopter.

Sorry Nial.  You are incorrect.  Excess reserves are the most hyperinflationary thing out there, despite what you are desperate to believe. 

BigJim's picture

 Why would you continue to hold Dollars or have faith in them...

Because if 'you' don't, the US military will start playing 'freedom!' games in your back yard and hand your satrapy over to more compliant puppets?

This is why the Arab Spring had to be crushed... any real democracy in the oil producing MENA countries would spell a very quick end to USD currency hegemony.

Quinvarius's picture

Here is the thing about the whole oil/military/USD plan, it has no concrete economic reality behind it, IMO.  Anything can take the place of the USD.  But more important, the status quo is more likely the cause of high inflation.

I watched this series on Roman inflation this weekend.  It is worth an hour of your time.  What it boils down to is that the government, and the military in particular, are the drivers of inflation in an empire.  Plus you get to see all the stupid things the Romans did to try and fix their currency, and where we are going.




The implied, "gold bitchez" rings loudly.

BigJim's picture

Informative links. Thanks.

THE DORK OF CORK's picture

Export of Spanish (almost) fixed capital to Auzie land.




Notice the car traffic..............


Wrong currency.


Poor Grogman's picture

Hopefully soon, we will get to see whoever or whatever is really pulling the strings to make these useful idiots dance the Keynesian jig.

The educated "just trust me" types just aren't bridging the credibility gap anymore...

thunderchief's picture

Deflation in what? Oh, food made from crap, dirty water, paper gold and hot air, which this guy is full of. Tony Blair would be so proud of him.

dunce's picture

I have to not believe when blanket statements about excess reserves or deficits do not matter. Don't matter to who or when or to what?

dunce's picture

I have to not believe when blanket statements about excess reserves or deficits do not matter. Don't matter to who or when or to what?

BigJim's picture

Don't matter to the economy at large (in terms of broad price inflation) until the commercial banks start lending again and the money multiplier/velocity picks up.

What Ferguson doesn't go into is that if the economy is to recover, lending will have to pick up. And the Fed can't suck up the excess reserves (created by buying billions/trillions of toxic assets at par from the banks) by selling those assets back to the market, because they're actually only worth a few percent of their face value. Which means that the only way to prevent price inflation accelerating is by raising interest rates... which will cause the banking system to implode. Again.

As for Feguson's puffing up the Fed's prevention of a 'depression' - the Fed hasn't prevented one, it's merely deferred one, and made it potentially much larger and a currency-threatening event to boot. 

q99x2's picture
Niall Ferguson would have done society better if he would have been a ditch digger. He's funny because his persona appears to believe what he is saying. He doesn't believe the bullshit he sells and is scared about what seems to be happening.

Chris is the real deal.

Weisbrot's picture

martensen is just looking to sell y'all his book of doom - furguson has a history of being honest and straight forward at all times.

Olephant's picture

Ferguson is a mercenary historian. He writes history for whomever pays the best. 

DaveyJones's picture

while killing a few innocents along the way

thestarl's picture

Get fucked you dumb cunt.The premise is simple really any moron who can't now see the bleeding obvious that the present growth game is up is obviously suffering some form of delusional trip.Open your eyes dickhead? 

TyrannoSoros Wrecks's picture

I'm not watching an hour of that shit so I'll just read the comments.

WTFUD's picture

Friends Saudis Qataris lend me your surface to airs!

I'm proof reading Nihilistic Ferguson's latest offering
' My cock up Ben's arse is worth two Georgie Bushes'

involuntarilybirthed's picture

Or they can raise super taxes/cut programs/entitlements (SS/Medicare/caid) if electronic money creation becomes untenable.  Washington will do what it needs to do to insure Washington survives at the ruin of the rest of us.  If you have money, identifiable money, they will take it if need be.  If they need to discontinue currency and force all to electronic transaction they will so they can monitor who has (had) what.  They have many options when it come to them or us.  We are not all in this together at that point. 

Who the next president is really will matter next time.    

otto skorzeny's picture

The next prez has already been chosen- but not by the American people. I do agree  that paper $ has become a liabilty as the ability to tax it in an underground system that we are turning to is impossible for them to do.

DaveyJones's picture

looks smells and tastes like something else as well

My brother, lucky bastard, was born a great artist and could draw or sculpt anything. In highschool, he took a brownie and made it look exactly like a dog's best relief. He got a few senior friends to gather round and quickly built a crowd. Hey "DaveyJonesbrother" is going to eat dogcrap for money. Quickly people bid up the price. The hardest thing was the acting job and me, the little freshman, knew his drama skills were nothing like his pencil but I kept my mouth shut... and my brother made 38 dollars in fifteen minutes in 1978.

In many ways today, we have the curse of Ben's reverse...and all of us are starting to vomit.     

Clever Name's picture

+1 for that story.



My Aunts roomates sister in law made $19,867 sitting at her computer!

nmewn's picture

Hang in.

They've managed to pit one against the other to the point we are all one.

Won't be long now.

kindape's picture

I agree w Ferguson. Excess reserves dont matter. Central banks have just taken over the role previously held by commercial banks - there is no multiplier and can be no major inflation without an explosion - as in - a currency going poof. (Similarly there can be no major deflation without policymakers saying no mas as far as guarantees/support - but the difference between the 2 possibilities - or both - is narrowing as there become fewer and fewer options.

To what most here (seemingly) care about, gold and silver are dead for a long time/unless/until a Yen/Euro goes offline, in which case metals go parabolic of course. I see silver in $16-28 range for years unless the former happens. So I guess risk reward is highly in favor of owning, but might be dead money for a very long time (and when it becomes live, you won't be too happy as you are suddenly a rich out-group)

NidStyles's picture

Might I suggest you pull the government sized green weenie out from your mouth? This is the wrong site for that sort of nonsense. 

toadold's picture

Sigh..."Two brigades of Colombian  Mercenaries, at the hire of a cabal of insurance companies and pension funds, have staged a military coup in Washington DC." "A spokesman for the cabal stated the Colombians were just doing the job that Americans didn't want to do anymore."

Motorhead's picture

Susan Underhill?  What about Betty Jo Bialowski? (sorry for the Nick Danger relapse).

This broad has nuthin on Lauren Lyster, ain't that right, Reggie?

sgt_doom's picture

Niall Ferguson, THE Harvard expert (Harvard, one of the top three criminal factories in Amerika)?

You mean, that clown who did the 2-volume puff piece on the Rothschild family?

The guy who cowers before David Ickes (he just has to attack Ickes in his forward to one of those Rothschild volumes?????) and fails to mention anything of a credible nature in those two volumes?

The clown who is a member of the lobbyist group for the international super-rich, the Bretton Woods Committee (brettonwoods.org)?

What exactly is Ferguson supposed to know about????

BigJim's picture

Ferguson can trot out the actual historical facts, which lends credibility to the pro-Status Quo arguments made by him and the less informed talking heads blessed by the Establishment. He's a smart, slippery customer who comes across as well-informed and reasonable but who never really digs into the essentially fraudulent nature of fiat currency+commercial fractional reserve money creation.

His anti-Iranian stance is another big tell that he's a Rothschild puppet. They devoted much of their energies in the 19th and 20th centuries on Zionist projects, and anyone who is an obstacle to Israel has to be crushed.

So for instance, when people criticised the Iraq war, Ferguson's response showed his usual artful casuistry:

"It's all very well for us to sit here in the west with our high incomes and cushy lives, and say it's immoral to violate the sovereignty of another state. But if the effect of that is to bring people in that country economic and political freedom, to raise their standard of living, to increase their life expectancy, then don't rule it out" (Wikipedia)

people criticising the war weren't necessarily doing so because they thought states' sovereignty must not be violated; they did so because they knew that such interventions would cost tens (or even hundreds) of thousands of lives, would strengthen the Western MIC's grip on our polities, and might ultimately make the Iraqis' lives worse off than they had been under Saddam.

And so far, the critics' viewpoint looks increasingly correct.

Clowns on Acid's picture

What comes after kaboom ?

RockyRacoon's picture

Ferguson is a hoot.  He's credible because he has that classic English accent.  He MUST know what he's talking about.
Excess reserves don't matter, no inflation, no deflation, the Fed stopped a Great Depression (which they created).  All nice talk about TPTB so that he can stay an insider.
All these guys are relevant if for no other reason than to "know thy enemy".  You just gotta be smart enough to know when they are talking their intellectual book (which Ferguson is on tour to sell).  He's not stupid by any means, but his salary (job retention) is dependent upon the economy recovering.

PiratePiggy's picture

What about that cutie, Justine Underhill.  I don't know where she is from, but it seems like she has a hot Yonge Street accent... My ears tell me she is from Ontarian accent,  but it is no more than a guess.

EB's picture

DC native...go figure :->

smlbizman's picture

is bob english still an editor at this hedge?

BigJim's picture

His last contribution ( http://www.zerohedge.com/contributed/2012-12-17/crisis-conflicts-new-yor... ) was more than six months ago... so maybe not.

By the way - nice work @ RT, EB. Funny how a descendent of Pravda digs deeper into the forces underlying modern 'capitalism' than our own degenerate media.

VERY disappointed to discover you don't sport a large moustache and top hat, though. 

EB's picture

It's true...it's been a while since I've posted here.  Been busy reconciling "news" with "truth." :->  

I'll work on the tophat.  Can't make any promises about a moustache, though.