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Guest Post: Explaining Hyperinflation

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Submitted by John Aziz of Azizonomics

Explaining Hyperinflation


This is a post in three sections. First I want to outline my conception of the price level phenomena inflation and deflation. Second, I want to outline my conception of the specific inflationary case of hyperinflation. And third, I want to consider the predictive implications of this.

Inflation & Deflation

What is inflation? There is a vast debate on the matter. Neoclassicists and Keynesians tend to define inflation as a rise in the general level of prices of goods and services in an economy over a period of time.

Prices are reached by voluntary agreement between individuals engaged in exchange. Every transaction is unique, because the circumstance of each transaction is unique. Humans choose to engage in exchange based on the desire to fulfil their own subjective needs and wants. Each individual’s supply of, and demand for goods is different, and continuously changing based on their continuously varying circumstances. This means that the measured phenomena of price level changes are ripples on the pond of human needs and wants. Nonetheless price levels convey extremely significant information — the level at which individuals are prepared to exchange the goods in question. When price levels change, it conveys that the underlying economic fundamentals encoded in human action have changed.

Economists today generally measure inflation in terms of price indices, consisting of the measured price of levels of various goods throughout the economy. Price indices are useful, but as I have demonstrated before they can often leave out important avenues like housing or equities. Any price index that does not take into account prices across the entire economy is not representing the fuller price structure.

Austrians tend to define inflation as any growth in the money supply. This is a useful measure too, but money supply growth tells us about money supply growth; it does not relate that growth in money supply to underlying productivity (or indeed to price level, which is what price indices purport and often fail to do). Each transaction is two-way, meaning that two goods are exchanged. Money is merely one of two goods involved in a transaction. If the money supply increases, but the level of productivity (and thus, supply) increases faster than the money supply, this would place a downward pressure on prices. This effect is visible in many sectors today — for instance in housing where a glut in supply has kept prices lower than their pre-2008 peak, even in spite of huge money supply growth.

So my definition of inflation is a little different to current schools. I define inflation (and deflation) as growth (or shrinkage) in the money supply disproportionate to the economy’s productivity. If money grows faster than productivity, there is inflation. If productivity grows faster than money there is deflation. If money shrinks faster than productivity, there is deflation. If productivity shrinks faster than money, there is inflation.

This is given by the following equation where R is relative inflation, ?Q is change in productivity, and ?M is change in the money supply:

R= ?M-?Q

This chart shows relative inflation over the past fifty years. I am using M2 to denote the money supply, and GDP to denote productivity (GDP and M2 are imperfect estimations of both the true money supply, and the true level of productivity. It is possible to use MZM
for the money supply and industrial output for productivity to produce different estimates of the true level of relative inflation):

Inflation and deflation are in my view a multivariate phenomenon with four variables: supply and demand for money, and supply and demand for other goods. This is an important distinction, because it means that I am rejecting Milton Friedman’s definition that inflation is always and only a monetary phenomenon.

Friedman’s definition is based on Irving Fisher’s equation MV=PQ where M is the money supply, P is the price level, Q is the level of production and V is the velocity of money. To me, this is a tenuous relationship, because V is not directly observed but instead inferred from the other three variables. Yet to Friedman, this equation stipulates that changes in the money supply will necessarily lead to changes in the price level, because Friedman assumes the relative stability of velocity and of productivity. Yet the instability of the money velocity in recent years demonstrates empirically that velocity is not a stable figure:

And additionally, changes in the money supply can lead to changes in productivity — and that is true even under a gold or silver standard where a new discovery of gold can lead to a mining-driven boom. MV=PQ is a four-variable equation, and using a four-variable equation to establish causal linear relationships between two variables is tenuous at best.

Through the multivariate lens of relative inflation, we can grasp the underlying dynamics of hyperinflation more fully.

Hyperinflation

I define hyperinflation as an increase in relative inflation of above 50% month-on-month. This can theoretically arise from either a dramatic fall in ?Q or a dramatic rise in ?M.

There are zero cases of gold-denominated hyperinflation in history; gold is naturally scarce. Yet there have been plenty of cases of fiat-denominated hyperinflation:

This disparity between naturally-scarce gold which has never been hyperinflated and artificially-scarce fiat currencies which have been hyperinflated multiple times suggests very strongly that the hyperinflation is a function of governments running printing presses. Of course, no government is in the business of intentionally destroying its own credibility. So why would a government end up running the printing presses (?M) to oblivion?

Well, the majority of these hyperinflationary episodes were associated with the end of World War II or the breakup of the Soviet Union. Every single case in the list was a time of severe physical shocks, where countries were not producing enough food, or where manufacturing and energy generation were shut down out of political and social turmoil, or where countries were denied access to import markets as in the present Iranian hyperinflation. Increases in money supply occurred without a corresponding increase in productivity — leading to astronomical relative inflation as productivity fell off a cliff, and the money supply simultaneously soared.

Steve Hanke and Nicholas Krus of the Cato Institute note:

Hyperinflation is an economic malady that arises under extreme conditions: war, political mismanagement, and the transition from a command to market-based economy—to name a few.

So in many cases, the reason may be political expediency. It may seem easier to pay workers, and lenders, and clients of the welfare state in heavily devalued currency than it would be to default on such liabilities — as was the case in the Weimar Republic. Declining to engage in money printing does not make the underlying problems — like a collapse of agriculture, or the loss of a war, or a natural disaster — disappear, so avoiding hyperinflation may be no panacea. Money printing may be a last roll of the dice, the last failed attempt at stabilising a fundamentally rotten situation.

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.

Predicting Hyperinflation

Hyperinflation is notoriously difficult to predict, because physical breakdowns like an invasion, or the breakup of a currency union, or a trade breakdown are political in nature, and human action is anything but timely or predictable.

However, it is possible to provide a list of factors which can make a nation or community fragile to unexpected collapses in productivity:

  1. Rising Public and-or Private Debt — risks currency crisis, especially if denominated in foreign currency.
  2. Import Dependency — supplies can be cut off, leading to bottlenecks and shortages.
  3. Energy Dependency — supplies can be cut off, leading to transport and power issues.
  4. Fragile Transport Infrastructure — transport can be disrupted by war, terrorism, shortages or natural disasters.
  5. Overstretched Military — high cost, harder to respond to unexpected disasters.
  6. Natural Disaster-Prone — e.g. volcanoes, hurricanes, tornadoes, drought, floods.
  7. Civil Disorder— may cause severe civil and economic disruption.

Readers are free to speculate as to which nation is currently most fragile to hyperinflation.

However none of these factors alone or together — however severe — are guaranteed to precipitate a shock that leads to the collapse of production or imports.

But if an incident or series of incidents leads to a severe and prolonged drop in productivity, and so long as government accelerates the printing of money to paper over the cracks, hyperinflation is a mathematical inevitability.

 

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Thu, 10/04/2012 - 16:46 | 2857257 economics9698
economics9698's picture

I will write one about this maybe this weekend.  

Thu, 10/04/2012 - 16:59 | 2857308 economics9698
economics9698's picture

FYI 44 basis points and the Fed is bankrupt.  That’s not very much.  Then the printing shall commence in earnest!

Thu, 10/04/2012 - 17:07 | 2857350 THX 1178
THX 1178's picture

I think Hyperinflation was always the plan. I mean, once we went off the gold standard (officially) in 1971, there was immediate outcry to return... but it was realized that we have a system of credit-- a national credit card-- that we could max out and then hyperinflate to pay off... why would we waste it? That's why I'm always amused when people bitch about the national debt, "16 Trillion! Oh God how are we going to pay that off. We'll be in debt forever." NO WE WON'T. WE ARE GOING TO FUCK OUR CREDITORS AND HYPERINFLATE. THAT WAS ALWAYS THE PLAN. After all, when you transition from a fiat money system to a gold standard, deflation doesn't cut it because it causes people to hoard cash-- they can't get enough of it. Hyperinflation is just the opposite, there is so much cash that people throw it in the gutter, paper their walls with it, wipe their asses, etc. So if you know hyperinflation is a debt jubilee, and you know you are going to hyperinflate... why not get your money's worth? Its a conspiracy, but not your typical internet/alex jones/rense conspiracy. People find it so hard to believe that there are benevolent conspiracies, or at least SOMEWHAT benevolent conspiracies. And this I think is one of them. So, yes, prepare for hyperinflation and our return to a gold standard is my advice.

Thu, 10/04/2012 - 17:55 | 2857489 EvlTheCat
EvlTheCat's picture

I am confused as to why you believe, in earnest, this is a somewhat benevolent return to a gold backed currency?  Why would they not just use the current debasement of the dollar to try and introduce another "more stable" global currency?  My wife comes from Brazil, and she can remember a time where they were trying to convert between three different currencies, trying to stabilize the economy.  They never went back to a gold standard.  And in my opinion, I do not see a benevolent ending to this.  Even if they do back a new fiat system by gold, who is to say they will allow you to cash out your investments into gold, if every thing is paperless.

I am more inclined to believe they want to go to a paperless system in order to have more control over the monetary system.  It certainly would make it easier to add and remove money from the supply, and not let paranoid people, like myself, "stuff their mattresses" with their savings or convert to hard assets without petitioning some benevolent  banking benefactor in times of fear. Try to remove 10,000 dollars or try and cash out an investment from your bank today, and see what kind of monkey shine they pull.  They would have total control over people choices and an even easier time disappearing your investments.

I hope I am wrong, but with the evidence I see around me today I am afraid I am right.

Thu, 10/04/2012 - 18:03 | 2857513 THX 1178
THX 1178's picture

I don't know what you mean by "they" when you say introduce a global currency. Who are they? I think there are people who want that, but I don't think they have as much influence as conspiracists give them. Same with paperless system. But yes, I believe in earnest this is what is happening. "back a new fiat system with gold" I don't know what this means. "who is to say they will allow you to cash out your gold if everything is paperless" well, I never said anything about paperless... so again, I don't know what this means.

Also, there is news all over the place of countries hoarding gold bullion china, russia, turkey, and others... they are themselves going to issue gold backed currencies! This is why the global currency stuff doesn't stick for me! In order to have a global currency, you need everyone on board. And China and Russia and many others are not on board with that. It only takes one gold standard currency to totally GUT a fiat currency that can be debased. So if china returns to a gold standard, the global fiat won't happen.

Thu, 10/04/2012 - 18:35 | 2857620 kito
kito's picture

as long as 161 million people are depending on the government for some entitlement or employment, it matters NONE................they will vote for their cheese.....................

Thu, 10/04/2012 - 18:44 | 2857643 Landotfree
Landotfree's picture

The global credit system is not hyperinflating and is barely even inflating during this dead cat bounce.   The system inflated exponentially for 63+ years, now it is unable to inflate normally.   The Fed's job is delay the collapse as long as possible, the Fed's job is not to stop the collapse has that is impossible unless one possesses unlimited power.

Inflation died in the US in 2007, the US is central engine of the global system just as the UK was the center of the system in 1929.  Nothing has changed.  The only thing that will be inflating is the number unfunded liabilibities that will have to be liquidated.

 http://2.bp.blogspot.com/--RkLZLRlRi8/UGAGOUg7fNI/AAAAAAAAABs/HHgMlfUYP2...

I know, I know... the helicopters are coming to save you, I assure you there are no helicopters coming to save anything.  This blog is the Fed's wet dream.  

All you nuts can go run down to the bank and collect your wheelbarrows full cash, you show up at the bank at 9am, the bank will be out of cash by 9:05am... 

 

Thu, 10/04/2012 - 18:51 | 2857670 kito
kito's picture

yes sir............hold those precious physical dollars..............arent alot floating out there...................

Thu, 10/04/2012 - 20:05 | 2857879 economics9698
economics9698's picture

Land of the free dude you look at the M2 velocity lately?  Maybe that would be a indicator that all is not well.  Or excess reserves.  When that freight train comes you will be on the tracks looking the wrong way.

 

http://research.stlouisfed.org/fred2/series/M2V?cid=32242

Thu, 10/04/2012 - 18:53 | 2857678 The Alarmist
The Alarmist's picture

Blah, Blah, Blah ... there is no inflation ... I know, because CNBS, the BoE, the Fed, and numerous other reliable sources tell me so.

So what if SPAM costs nearly twice as much as it did 10 years ago. The fact that I can still buy a hamburger with what used to get me a steak is ample evidence that inflation is not a problem. Hyper inflation is simply a problem of other, more distant regimes.

Thu, 10/04/2012 - 19:57 | 2857707 akak
akak's picture

 

Inflation died in the US in 2007

So overall prices, and the cost of living (at least in the USA) are up at least 30% since 2007, um, exactly why?

You know, you can make all the deflationary flat-earth, egghead academic arguments you want, but in the end there is only ONE thing that matters to almost everyone, and that is precisely this: How does the value of the dollars I am earning (or have saved) today compare to their value in the past, and what will the value of my income (or my savings) be in the future?  Everything else is smoke and mirrors.

Thu, 10/04/2012 - 23:34 | 2858287 All Risk No Reward
All Risk No Reward's picture

If Obama has any sense, he will try and lose this year and rake in his $10 million a year pay day post presidency.

If he waits another 4 years, he'll likely get far less and be hated all the more.

Thu, 10/04/2012 - 18:28 | 2857597 EvlTheCat
EvlTheCat's picture

I am not saying you don't have valid points and that I don't want to believe you.  And when I refer to "they" I am talking about the Western banking cartel. 

I am not a fringe conspiracy theorists, but some of the ideas presented are interesting, to the point where they would make sense, if you are talking about global finance control.  Even if adopted in a particular country/ies, a paperless system gives the government more control over the system as a whole.  Aren't most people on this website against that kind of control, to the point where the legality comes into question?  As an example it would certainly eliminate people who are unskilled labour from jobs where they get paid under the table.  With the new system are we going to overhaul the bureaucracy to allow it to be easier to start small business and to fund then so these people do not have to work under the table to provide for themselves?

Yes, everyone is shoring up their gold reserves in a protectionist move.  But is that a precursor to war, or is every country anticipating the dollar collapse and a new United States currency where we are not the reserve currency?  If that is the case won't everyone be pissed if/when it happens in the U.S.?

Thanks for the reply.

Thu, 10/04/2012 - 19:53 | 2857853 Tegrat
Tegrat's picture

I recently withdrew a small 401k fund (was in bonds and nat resources) from a short contract years ago. I deposited it in my checking. And used 1/2 to extend my PM holdings. I am using the other half to buy a small solar system to offset the hit in penalties and tax liabilities.

There was a two week hold on the funds as they transferred but no problems otherwise. I have possession of my procured goods. No need to install anything just yet.

 

 

 

Thu, 10/04/2012 - 21:08 | 2857948 EvlTheCat
EvlTheCat's picture

Everyone's experience is different I suppose.  Wells Fargo SUCKS from my past experience. The "straw" that ended it for me was, I had two CD due to roll over, I told them I was cashing both of them out via phone and notary letter.  One got processed the second got rolled over. They wanted to penalize me for cashing out the newly rolled over CD.  It took me a two months to get them to admit their mistake, because the branch manager "had no power" to deal with the issue.

I am going through another issue now trying to move assets from one investment to another because the loosing investment bank says, "I need the financial advisor who prepared the investment to submit the paperwork to move the assets".  Horse shit.  And of course when you fulfil one requirement, then they have two more "oh, bye the ways" you need to do this also..  Pacific Life SUCKS too.

I do not think of benevolence when banks deal with financial matters. I think of purposely inefficient bureaucratic pig men and women.

Fri, 10/05/2012 - 07:38 | 2858678 jlindesay
jlindesay's picture

This small solar system you're buying - has it got any habitable planets?

Thu, 10/04/2012 - 18:09 | 2857534 Yen Cross
Yen Cross's picture

 I wan't to know where I can "buy" a FICO of 650 with 16 Trillion in the hole? Lest we forget all the un-hypothecated (earned) entitlement programs!

Thu, 10/04/2012 - 18:09 | 2857537 i_fly_me
i_fly_me's picture

You think intentional hyperinflation is a benevolence?  Stealing from those who produce more than they consume is not benevolence, it is corruption in the very truest sense.  It encourages vice and discourages charity in a way that rots society from the bottom up.  It sets people against each other when they would naturally be inclined to work together for mutual benefit.  Also, when hyper-inflations occur, they don't happen overnight, they happen over the course of years and they do not result in a debt-jubilee, they result in massive wealth transfers to those doing the printing who then sell the people a new system and continue the scam.  The only way any true gold standard will come into being is by individuals *choosing* to opt out of government controlling their savings and not storing it in government instruments (including illusory gold-hardened currencies in which the government controls the currency/gold ratio).

Thu, 10/04/2012 - 18:21 | 2857577 THX 1178
THX 1178's picture

Thats a very interesting tirade, but you have to look at it like a this: the short term hit is less that the long term gain. FAR LESS. And hyperinflation historically has not happened overnight. But we live in a  different world than we used to. A world flooded with US dollars and TONS of treasuries. A soon as there is a flight from treasuries, expect a crash and subsequent printing. Things move much faster these days.

Thu, 10/04/2012 - 19:24 | 2857784 123dobryden
123dobryden's picture

the problem at the moment is that US military and the Empire itself  controls those about to flight quite tight, but as you say things move much faster these days

Thu, 10/04/2012 - 20:48 | 2857968 i_fly_me
i_fly_me's picture

That wasn't a tirade and I still don't see who it is you are saying gains from hyperinflation in your analysis (long term or whenever).  The only winners will be the banks.  You seem to think we are going to go through a currency collapse and then in orderly fashion transition into a hard money paradigm.  It just doesn't work that way.  The banks only have to win *nominally* while everyone else has to make it in real terms, including the government.  The banks rigged this game ... they will continue winning as long as we are playing their game.

Thu, 10/04/2012 - 21:08 | 2858013 robertocarlos
robertocarlos's picture

He probably thinks his debts will be wiped out by hyperinflation AND he'll keep his job.

Thu, 10/04/2012 - 22:14 | 2858137 THX 1178
THX 1178's picture

I have no debts. nice try.

Fri, 10/05/2012 - 01:19 | 2858425 All Risk No Reward
All Risk No Reward's picture

Here's the game board as I see it set up.

1. The Money Power controls government (finances and promtes its operatives into government positions).
2. The Money Power is sovereign, everyone else is subjugated.

Debt Money Tyranny would not exist if it weren't so, as exposed here:

http://www.keepandshare.com/doc/4715145/debtmoneytyranny-5-pdf-57k?tr=77

Or, as Napolean put it, "The hand that gives is above the hand that takes."

The Bible puts it thusly, "the borrower is servant to the lender."

You get the idea.

3. The Money Power uses its amassed fraudulent wealth to buy up multi-nationals and mega corporations.
4. The Money Power has control over trillions in debt assets directly and through their front corporations.
5. The Money Power has control over trillions in cash directly and through their front corporations.
6. The Money Power controls the Federal Reserve Policy.
7. The Money Power isn't just self interested, they are psychopathically self interested.
8. The Money Power controls the mega-banks and they are lending 30 year money at 3.5%.

My research has made these truths self evident.  If your research isn't there yet, don't fret - just assume these 8 truths for now.

My question to all of you straight to hyperinflationistas is, "why would the Money Power go straight into hyperinflation when they own/control the bulk of the cash and debt assets?"

Some claim the banks "win," but don't explain how lending out real value to buy a home and receiving a loaf of bread's worth of cash to pay off the loan benefits the banksters because it doesn't.

Not to mention, the minute real hyperinflation is smoked out, people withdraw all their money from the banks and spend it on hard goods.  That's another loser.

I think a debt saturated society is merely wishing their book.

The banksters are going to steal as much cash possible (that's what QE is, theft - they aren't trying to fix what they blew up), they are going to offload as much debt on the public as possible and when the cost/benefit of looting turns bad for them, they pull the plug on credit, they bust the debtors, roll up almost all society's assets into their TBTF front corporations and use their puppet politicians to proclaim the failure of the Repbulic and freedom and demand that a world government, run by more puppets they Money Power finances and controls, run the show or else the people will starve.

Even if you can't grasp the wicked striving for world domination (duh!?!?!?), they are going to bust you and steal your real world chit before they hyperinflate.

They will likely hyperinflate in the end - but only after they've cashed out of their Debt Money Tyranny into ownership of most of the tangible wealth on the planet... and it won't matter to them at that point.  Debt Money Tyranny will have done what it was engineered to do - transfer the hard assets of a post bubble nation (nations, actually) to the Money Power.  Covertly.

Some will ask why they are QEing to save the economy.

They aren't.  That's a false narrative.  This...

http://market-ticker.org/akcs-www?post=207083
(first chart)

...can't be fixed.  Nor do they want to fix it.  Your debt is their neo-shackles around you.

The Money Power isn't stupid - Faber and Rogers have made the error of believing the false narrative.  They are allowed on TV to spout their views because the Money Power allows them... it serves the Money Power interests to let them on TV.

The Money Power ruiles the world precisely because they aren't stupid, even if they go Art of War on the ignorant and feign stupidity!

“Pretend inferiority and encourage his arrogance.“
~Sun Tzu, Art of War

QE is all about transferring toxic assets to the ignorant populace and to transfer trillions in cash (debt receipts) to the banksters.

Who hear wouldn't accept a 10% devaluation of the currency if you could have $1 million cash today.  Try trillions.  Millions of millions.  Yes, the math works.

But I'll tell you what doesn't work.  Making the currency worthless, causing bank runs, paying off 3.5% 30 year loans with bread money...  makes no sense.

NOBODY in the "straight to hyperinflation" camp has ever addressed this reality in a detailed manner.  Rather, it is typically, "Bernanke is dumb, I'm gonna get my debts bailed out."

Uh, no.  Bernanke isn't dumb, he's enriching his employers to the tunes of trillions while saturating our *sses with trillions of debt.  His employers run our government, they run the drugs, arm their drug cartels with tax payer money and launder the drug money and, when they get caught, nothing happens to them.  Their operatives steal over a billion, lie to Congress under oath and nothing happens.  They bribe county governments and the government employees go to jail while JP Morgan, the briber, is never charged.  They toxify your food and water.

Debts aren't going to be bailed out.  Not gonna happen.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

But I am always open to having missed something here.  if you think so, please explain, in a detailed manner, where I've gone off the track here and why you think so.

Thu, 10/04/2012 - 18:43 | 2857647 Ghostbusters
Ghostbusters's picture

ah yes the benevolence of printing fiat currency that is used as "the gold standard" the world over to price funny things like oil, gold, and real estate or those pesky little things like rice, corn, milk, and pork bellies.  Funny how that works, Ben takes the helicopter for a spin and people starve.  ah yes the benevolence...

Thu, 10/04/2012 - 18:51 | 2857669 THX 1178
THX 1178's picture

Yes, it destroys the Federal reserve and the banking cartel, and makes us wealthier in the long run. It is benevolent compared to alex jones and rense and the NWO/depopulation agendas.

Thu, 10/04/2012 - 20:32 | 2857931 i_fly_me
i_fly_me's picture

It certainly will not destroy the banking cartel though they might sacrifice the FED as part of the reset process.  Who exactly is the "us" getting wealthier above?  Surely not those of us who have tried to live within our means and save the excess our whole lives.

Thu, 10/04/2012 - 21:03 | 2858004 THX 1178
THX 1178's picture

All of the infrastructure that we bought and built with the petrodollar and strong dollar policies... we get to keep. This is us maxing out the credit card. On the whole, our nation will be much richer because of it. And also, yes it will destroy the banking cartel because it destroys their monopoly on money.

Thu, 10/04/2012 - 21:48 | 2858078 i_fly_me
i_fly_me's picture

"We bought?"  *I* didn't get *anything*.  Are you insinuating that I am richer because "we" steal my savings and build solar factories and such with it?  Collectivists annoy me when they use this logic.  Government adds no value, it only takes and crowds out legitimate production.

Thu, 10/04/2012 - 22:28 | 2858168 THX 1178
THX 1178's picture

Yes! Absolutely! the Petrodollar standard and the Cheap Chinese/foreign shit we got from that system made you ORDERS OF MAGNITUDE richer than you otherwise would have been had it not been done this way!!!

Thu, 10/04/2012 - 23:14 | 2858243 i_fly_me
i_fly_me's picture

Your understanding of wealth is disturbed.  By your logic the guy who lives under the bridge is as well off as the guy driving over it.

Thu, 10/04/2012 - 23:45 | 2858309 THX 1178
THX 1178's picture

Nonsense.

Fri, 10/05/2012 - 16:08 | 2860906 i_fly_me
i_fly_me's picture

Exactly ... nonsense.

Fri, 10/05/2012 - 02:34 | 2858456 SeattleBruce
SeattleBruce's picture

And the bankstas/PTB will control the reset (as they've hoarded the wealth on the way down (deflation) and the way up - hyperinflation).  They will control the reset, unless 'we the people' can somehow muster the will to prevent it.  In any case all it takes for evil to triumph is for good men to do nothing [Edmund Burke] - and that has always been true.

Thu, 10/04/2012 - 17:50 | 2857468 smlbizman
smlbizman's picture

how does silver drop in a 1 minute chart .30 in that span without a bid? and that was at 5 21

Thu, 10/04/2012 - 17:51 | 2857473 bobola
bobola's picture

How does Blythe Masters sleep at night...???

Thu, 10/04/2012 - 19:05 | 2857713 max2205
max2205's picture

OPM?

Thu, 10/04/2012 - 18:21 | 2857526 smlbizman
smlbizman's picture

than recovered all at 5 59 to 6 01....it looks like a flash crash...charts at netdania 1 min chart and the tick chart shows it broken down in seconds...i would really like to see the nanex view of this...it bounced between 34.60 to 34.605 to 34.61 for forty minutes

Thu, 10/04/2012 - 18:17 | 2857559 SafelyGraze
SafelyGraze's picture

how does the mint go from 0 to 0 to 0 to 1,233,000 ozt in the first four days of october

the zeros are accounted for

but a million ounces in a day? that's 85 thousand pounds that could've been used as antimicrobial cellphone parts inside missiles.

cut it out, mint. you're gonna burn through the annual domestic production before the election.

Thu, 10/04/2012 - 19:14 | 2857750 LMAOLORI
LMAOLORI's picture

 

 

Economics 9698

Did you say you are an Economics teacher?  I might be confusing you with another but can the Fed really go bankrupt? I don't believe it can. Being the World's Resever Currency we can't really default either unless they do it intentionally and none of the politicians would really want to do that because Money is Power and Debt is Slavery. 

 

Fed New Accounting Change Means its Impossible for the Fed to go Bankrupt!

Hot! Fed hides major Accounting Change

 

 

Thu, 10/04/2012 - 16:46 | 2857261 Newsboy
Newsboy's picture

This month's homework assignment: Iran.

Thu, 10/04/2012 - 16:59 | 2857305 Dr. Richard Head
Dr. Richard Head's picture

Their nuclear program http://www.youtube.com/watch?v=3Dmz8JO9zIw&feature=g-all-u ?

Or the effects of US sanctions being causation of hyperinflation in Iran?  I would assume the latter, but wanted to share the former.

Thu, 10/04/2012 - 17:13 | 2857361 Newsboy
Newsboy's picture

Love the name...

There was a shutdown in the Bazaar in Tehran, day before yesterday. The currency exchange rate was changing so fast that they turned off all the big boards and shut the doors. They blamed it on that anti-Muslim B-movie, but the Bazaar was shut for 4 hrs. My Iranian contact told me that, and there are reports about it.

I don't know what currency attacks the US, Israel and global banking are doing, but it's more than just sanctions and freeze-out from global banking. In the American Revolution England had a printing press for Continental dollars that did massive damage. Forgery was made a capital offense. There have to be local attacks like that going on inside Iran, as well as cyber attacks hammering away at all levels.

This has got to be an all out attempt to destroy the Rial/Touman in as short a time as possible. Iranian banking is a threat to global central banking, as was Libyan banking (RIP).

Thu, 10/04/2012 - 17:56 | 2857494 Harbanger
Harbanger's picture

I'm not disagreeing with you, I don't understand how the CBI or CBL can be a threat to other Nations Central banks.  You also say, lybia banking (RIP), as far as I know the CBL is still functioning.  Am I wrong?

Fri, 10/05/2012 - 06:48 | 2858651 Tango in the Blight
Tango in the Blight's picture

There wasn't a central bank in Lybia until last year. Founding it was the first thing the rebels did when they got in power.

Fri, 10/05/2012 - 11:03 | 2859719 Harbanger
Harbanger's picture

Wrong.  The Central Bank of Libya was started in 1956.

Thu, 10/04/2012 - 18:12 | 2857543 Urban Redneck
Urban Redneck's picture

Follow the "money"

1) out the back door of the exchange and across the bathtub to Dubai or

2) out the front door and into the Iranian economy

 

Either a counterfeit fiat printing press or a counterfeit tungsten machine press can wreak havoc if someone can get the "money" into the money supply

Thu, 10/04/2012 - 18:25 | 2857587 Harbanger
Harbanger's picture

I asked this b4 and didn't get an answer maybe you can help.  If you believe counterfeit fiat created the hyperinflation in such a short period of time in Iran, how did they distribute the truck loads of counterfeit fiat necessary to create all this excess cash? 

Thu, 10/04/2012 - 19:07 | 2857720 Urban Redneck
Urban Redneck's picture

I think counterfeit currency would be only one aspect within a larger effort to destroy confidence in currency, which will erode public support  for the existing government and possibly lead to regime change (the US being only slightly less succeptible to the exact same tactics because of the Coke/Pepsi challenge)

 

If you need to smuggle truckloads of "anything" into any country it is actually safest and easiest to use the known & established smuggling routes.

 If you need to quickly distribute a "product" throughout a country where you don't have a distribution network, you leverage an existing network (build it vs. buy it)  

Thu, 10/04/2012 - 19:34 | 2857809 Harbanger
Harbanger's picture

Hmm. I dont know, It's too much cash to give away unnoticed.  Besides, I don't think people there are concerned about getting paid with fake bills.  I think Irans existing $ supply is disproportionate to Irans economic productivity.   Likely a consequence of the sanctions.

Fri, 10/05/2012 - 03:25 | 2858516 Urban Redneck
Urban Redneck's picture

I am not saying the Iranians aren't printing plenty of fiat themselves, only that there is a multi pronged offensive underway in Iran.  If they are whipping up fancy computer code and assassinating the most cutting edge scientists the Iranians have, why aren't they also using one the oldest tricks in their book?

Fri, 10/05/2012 - 11:10 | 2859736 tip e. canoe
tip e. canoe's picture

this article may fill in some blanks:

http://www.reuters.com/article/2012/10/05/eu-iran-sanctions-trade-idUSL6E8L2ODY20121005?type=marketsNews

EU questions "taboo" against broad trade embargo on Iran

Thu, 10/04/2012 - 16:49 | 2857270 Yen Cross
Yen Cross's picture

 Explaining ; [ hyperinflation] , Hmmmm.  Your neighbor looks at your "ass" like it's beef tender loin.

Thu, 10/04/2012 - 17:05 | 2857337 mayhem_korner
mayhem_korner's picture

 

 

My neighbors do that all the time.  'course...they're bears.

Thu, 10/04/2012 - 18:27 | 2857595 Shigure
Shigure's picture

I do that to my neighbours. 'course...they're bulls.

Thu, 10/04/2012 - 16:50 | 2857274 bank guy in Brussels
bank guy in Brussels's picture

Jim Sinclair's simple statement on the mega inflation that is coming:

« The primary focus of QE is to prevent bankruptcy in financial entities and countries so far. It will be used to prevent state and pension fund bankruptcies ...  Currency induced cost push inflation will grab the entire Western world ... »

Thu, 10/04/2012 - 17:04 | 2857338 ParkAveFlasher
ParkAveFlasher's picture

Pensions are by definition money for nothing. 

Thu, 10/04/2012 - 17:17 | 2857377 Newsboy
Newsboy's picture

"Deferred Compensation" is more accurate.

"Money for nothing" is what banks get when they borrow at ZIRP and park it with the Fed.

Thu, 10/04/2012 - 17:33 | 2857423 mayhem_korner
mayhem_korner's picture

 

 

I nominate that for response of the day. 

Thu, 10/04/2012 - 20:42 | 2857951 blunderdog
blunderdog's picture

If pensions are deferred compensation, we have to really adjust how we think about the historical drop in wages.

Thu, 10/04/2012 - 16:51 | 2857279 Confundido
Confundido's picture

This is all wrong: What triggers the change from high inflation to hyperinflation is the birth of a quasi-fiscal deficit, or in other words, a deficit at the central bank, that can only be covered with more money printing. So far, this is not happening yet.

Thu, 10/04/2012 - 16:55 | 2857288 Temporalist
Temporalist's picture

Central banks aren't printing?  Phew that was a close one...

Thu, 10/04/2012 - 17:35 | 2857428 mayhem_korner
mayhem_korner's picture

 

 

Apparently, the Fed is in a copyright dispute with the NY Times over the tag line "all the money that's fit to print"...

Thu, 10/04/2012 - 18:26 | 2857592 LMAOLORI
LMAOLORI's picture

 

 

That should be NY SLIMES and "all the trash that's not fit to print"

Thu, 10/04/2012 - 16:57 | 2857297 dynomutt
dynomutt's picture

Your keyboard to Bond Vigilantes' ears.

Thu, 10/04/2012 - 16:57 | 2857299 Darth Mul
Darth Mul's picture

Dr. Krugman>???

 

Is that you???

 

 

Regardless, don't try to sell crazy here - we're all stocked up.

Thu, 10/04/2012 - 17:19 | 2857384 DonutBoy
DonutBoy's picture

Hmmm, not sure what to make of that.  But I do want to point out that the Fed is trading new money ( a liability of the central bank ) for "assets" such as MBS.  The Fed currently holds $835B of mortgages.  Isn't that incredible?  The Fed is the largest homeowner in America.  How far we have fallen.  If these assets were marked to market, the American central bank's deficit would be measured in hundreds of billions of dollars.

The border between inflation and hyper-inflation is loss of faith. When you fear your paper cannot be redeemed for anything real tomorrow you trade it for real things today at any price.

 

Thu, 10/04/2012 - 17:22 | 2857390 Coach McGuirk
Coach McGuirk's picture

What triggers hyperinflation is a loss in confidence of the current currency.

Thu, 10/04/2012 - 18:01 | 2857504 RockyRacoon
RockyRacoon's picture

...and the confidence is lost how?  You gotta go some levels deeper that the one trick pony you're riding.  Shallow thinking results in one getting caught with one's pants down.

Thu, 10/04/2012 - 16:59 | 2857310 deejo
deejo's picture

Good read, thank you for this

Thu, 10/04/2012 - 17:02 | 2857323 youngman
youngman's picture

I think we will be in the under 50% range...but above 20% for awhile...that will be enough to sap all the wealth out of the middle class and the poor....we will become an island in the world...as no one will touch us.....or want our currency...

Thu, 10/04/2012 - 17:02 | 2857324 Jack Sheet
Jack Sheet's picture

You are apparently unaware of FOFOA's blog. He predicts balls-to-the-wall hyperinflation in the US $. It is all explained clearly and at epic length on his site.

Thu, 10/04/2012 - 17:15 | 2857370 akak
akak's picture

 

It is all explained clearly and at epic length on his site.

Understatement of the year!

FOFOA: Why say in 10 words what can be dragged-out into 50,000 words instead?

Thu, 10/04/2012 - 17:17 | 2857380 Jack Sheet
Jack Sheet's picture

true, but unfortunately the issues he discusses aren't really available anywhere else with the possible exception of Antal Fekete.

Thu, 10/04/2012 - 18:05 | 2857523 kito
kito's picture

prof fekete says there is deflation (at the risk of akak kicking his ass---just kidding akak, we are friends now, remember?)......he says there is almost no probability of hyperinflation.................

Thu, 10/04/2012 - 18:57 | 2857689 akak
akak's picture

Will you still claim "victory" as a non-hyperinflationist if and when the USA suffers the (inevitable) currency crisis and the value of the US dollar, and most people's dollar-denominated savings, plunges by "only" 75 or 90% instead of by 99.999%?

Thu, 10/04/2012 - 19:30 | 2857803 kito
kito's picture

i wont claim victory in any catastrophe that will occur in this country...............................that being said, no, i dont think that scenario would benefit a deflationists argument........

Thu, 10/04/2012 - 19:39 | 2857825 akak
akak's picture

I was being a bit facetious, of course, but was only trying to point out the foolishness of the common, and erroneous, false dichotomy of the "hyperinflation or deflation" argument.  We do NOT need any full-fledged hyperinflation to effectively destroy our savings and standards of living --- a temporarily high inflation (currency debasement) rate would do just as well.

Thu, 10/04/2012 - 21:21 | 2858028 robertocarlos
robertocarlos's picture

I will claim victory but only because I get paid in CDN dollars. It's backed by oil and gold in the ground, AND the full protection of the US military. :)

Fri, 10/05/2012 - 15:27 | 2860710 Thisson
Thisson's picture

That's what *you* think. 

Thu, 10/04/2012 - 17:26 | 2857401 Jack Sheet
Jack Sheet's picture

There was one very epigrammatic quote from FOA though:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)"

Thu, 10/04/2012 - 18:05 | 2857522 RockyRacoon
RockyRacoon's picture

And that was back in what, the late 1990s?  A prophet to be sure.  The jig will be over when the reserves spring a leak onto the front lawns of the citizenry.  That will be the equivalent of Ben's helicopter drop.

Thu, 10/04/2012 - 21:26 | 2858038 robertocarlos
robertocarlos's picture

Correct me if I'm wrong but isn't printing money creating debt and someone has to pay that debt back. Y cant just print notes and drop them from choppers. That has to be illegal. Or else the printers would just give the money to their friends out the back door. ad then you would have hyper-inflation because sane pople would say why am I working for my money when it can just be printedwith no obligations.

Thu, 10/04/2012 - 17:26 | 2857402 dynomutt
dynomutt's picture

(S)he is too hung up on Aurum.  I say, buy the Argentum and play the GSR.

 

/50bagger is very wise, IMO.

Thu, 10/04/2012 - 17:03 | 2857326 mayhem_korner
mayhem_korner's picture

Neoclassicists and Keynesians tend to define inflation as a rise in the general level of prices of goods and services in an economy over a period of time.

 

That is just inflation observed.  Inflation is simply an increase in the ratio of in-circulation currency to the goods available for purchase.  That's it.  We can complicate it by obscuring the definitions of "in-circulation currency" and "goods available for purchase", but the basic premise is so simple even an economist might understand it.  It's like weight change is simply a function of the net of the number of calories consumed and burned.  Why we want to make it some mystery is beyond me.

Thu, 10/04/2012 - 17:03 | 2857330 Darth Mul
Darth Mul's picture

Hyperinflation is loss of purchasing power in the unit of value exchange.

 

In our system, a system of private federal banks, staffed with former and future officers of a handful of international megabanks, create the money out of thin air, and 'lends' it to the Government of the United States at interest in complete contravention of the US Constitution.

When you create a lot of the unit of value exchange, it's value, in the absence of countering factors, goes down, hence you can buy less with the same amount.

 

Simple, right?

 

Not sure how the Fed thinks they can 'de-monetize' the money supply {to help allow banks to gobble up yet more assets - further making their losses public and keeping profits private} but they may not even plan to.

 

When WWWIII kicks off, the dollar is going to be able to buy a whole lot less of gasoline.  Everything from food to plastic will cost more.   Check out "Collapse" if you havent seen it  - even if we don't run out of existing oil, running out of shipped-to-market oil/gas is the same thing.

 

See you in the Hope Camps.

Thu, 10/04/2012 - 17:07 | 2857346 mayhem_korner
mayhem_korner's picture

Hyperinflation is loss of purchasing power in the unit of value exchange.

 

Hyperinflation is the loss of confidence in the purchasing power of the currency.  That's what differentiates it from inflation, which is just a dilution of the purchasing power.

Thu, 10/04/2012 - 17:17 | 2857379 Darth Mul
Darth Mul's picture

I'm picking up what you're laying down; good point.

 

http://www.youtube.com/watch?v=b3-vwYJiD8g&feature=related

 

Wild deficit spending and unfunded/able entitlements, Frac reserve lending and compound interest, imho, are even more basic parts of our doom.

 

DOOM!!!

 

Thu, 10/04/2012 - 17:20 | 2857376 Jack Sheet
Jack Sheet's picture

There is a difference between electronic and paper fiat.

When inflation really takes off, that is prices are increasing by single digit percentages daily or more, the value of an electronic transaction will decrease during the the time taken for it to clear through the system.

This will lead to premiums being demanded for electronic vs. cash transactions (ie a price discount for cash) or a refusal to accept anything but cash. The government, being the biggest spender, will then get the FR to print up the bills with 15 zeros on them, in order to be able to purchase their real assets or pay for imports before you can.

FOFOA has discussed this in several posts, and there was an article in ZH some time ago entitled "dollar backwardation" which unfortunately didn't turn up using the search function.

 

Thu, 10/04/2012 - 17:25 | 2857398 mayhem_korner
mayhem_korner's picture

 

 

...and even larger premiums for gold.  :)

Thu, 10/04/2012 - 21:02 | 2857998 blunderdog
blunderdog's picture

Never happen.  Wherever the bottleneck is between the ability to "create money" and the ability for it to "enter the economy," I'm pretty confident it's NOT in the distribution of special colored paper.

Look at the junk mail industry.

In order for VELOCITY to increase, the "active circulation" of money has to increase.  That's not going to happen in the US because almost everybody is toiling for peanuts, and those who aren't are receiving dole checks for LESS than peanuts.

Basically: we'll have to worry about hyperinflation when 400 guys are spending MORE than the cost of government's dole programs.

Anyone really think that's going to happen soon?

Thu, 10/04/2012 - 17:06 | 2857331 floor
floor's picture

They might be printing, but as long as it goes to bonds, the fed can bye them all and it will never trigger inflation. Inflation/Hyperinflation is for markets without a bondmarket, like Argentina. The Western World is not going to trigger hyperinflation, that's suicide, even the 1% is losing when there is hyperinflation, so that's no excuse either.

They are fighting deflation, Bernanke is pissing his pants for deflation, why don't people understand this.

And governments always lose when they are fighting deflation.

 

Thu, 10/04/2012 - 17:30 | 2857400 mayhem_korner
mayhem_korner's picture

 

 

I didn't realize until now that your moniker is pegged to your economic IQ.

Buying bonds frees up currency that otherwise would have to buy them.  So it's a liquidity injection via displacement.  And nobody ever planned on hyper-inflation happening, so the "suicide" comment doesn't make sense.

But thanks for your comments, Mr. President...

Thu, 10/04/2012 - 17:04 | 2857333 SmittyinLA
SmittyinLA's picture

, that still produces sufficient levels of energy and agriculture to support its population (We don't America is a net food and energy importer),

 

and that still has a functional infrastructure* (for the moment). 

Thu, 10/04/2012 - 17:07 | 2857345 css1971
css1971's picture

So by the criteria mentioned. Japan.

Thu, 10/04/2012 - 17:09 | 2857355 DoChenRollingBearing
DoChenRollingBearing's picture

Great read, John Aziz.

 

Recall as well that hyperinflation is also caused by a scarcity of cash!  FOFOA explains this in his hyperinflation posts sometime back.  People spend the cash as fast as they can get it...  To cope, the central bank MUST print money in ever higher amounts.  Or all the cash is gone!  Poof!

And afterwards, well let's not go there yet...

Thu, 10/04/2012 - 17:13 | 2857367 floor
floor's picture

Jeh, now the only missing subject is the hyperinflation.

Fri, 10/05/2012 - 15:33 | 2860742 Thisson
Thisson's picture

No, that makes no sense whatsoever.  If people are spending all of their cash immediately, there is no scarcity of cash.  It is all circulating and none of it is hoarded.  That is why sometimes inflation goes up faster than printing.  Because the dis-hoarding of cash injects more money into active circulation; it acts as synthetic money-printing.

Thu, 10/04/2012 - 17:17 | 2857378 akak
akak's picture

Meanwhile, "ordinary" inflation (read: currency debasement) is an ongoing and never-ending fact of life.

I dare you to come to MY grocery store and show me any kind of 'deflation'.

Thu, 10/04/2012 - 17:25 | 2857395 floor
floor's picture

Periods of Inflation and deflation have always been around.

Problem is, last period of deflation ended about 60 years ago, not many people around who remember this, so nobody living now is familiar with it.

It's missing between the ears so to speak and therefore not recognised by most.

 

Thu, 10/04/2012 - 17:34 | 2857424 akak
akak's picture

The last period of deflation (in the WORLD, so far as I know) was in the USA between 1930 and 1933, and not coincidentally occurred while we were still under the gold standard.  Not coincidentally, that brief period of deflation ended precisely at the moment when the statist bastard Roosevelt took the USA off the gold standard.

In a fiat currency world, inflation (currency debasement) is ubiquitous and never-ending.  All talk of 'deflation' in a fiat-currency regime is just so much bullshit.

Thu, 10/04/2012 - 17:43 | 2857447 jimmyjames
jimmyjames's picture

The last period of deflation (in the WORLD, so far as I know) was in the USA between 1930 and 1933, and not coincidentally occurred while we were still under the gold standard.

All talk of 'deflation' in a fiat-currency regime is just so much bullshit.

***********

As usual AK has it completely fucked up-

The US was not on gold standard in the last deflation-if you actually knew anyfuckenthing about history-you would not make such absurd comments-

Thu, 10/04/2012 - 18:10 | 2857538 akak
akak's picture

So, JimmyJames, are you going to just make your usual ad hominem attacks, or are you doing to deign to defend your ludicrous assertions here?

And yes, the USA WAS on the gold standard, up until early 1933.  Or are you trying to totally rewrite history (again)?

Thu, 10/04/2012 - 18:34 | 2857616 akak
akak's picture

Care to make an argument instead of throwing out internet links at us?

Again, I want you to directly deny that the USA was on the gold standard until 1933 (imperfect at it was).  Or were all those US gold coins minted up until that year just a figment of our collective imagination?

You really are an idiot.  But you are also a deflationist, so I repeat myself.

Thu, 10/04/2012 - 18:57 | 2857684 jimmyjames
jimmyjames's picture

Can you not read and understand the link?

Here's another-

http://bit.ly/dgcom3

No point in me repeating what the facts are-you "really" have no clue about what you spout-

Thu, 10/04/2012 - 18:59 | 2857696 akak
akak's picture

A link is not an argument.

When you care to actually engage in discourse instead of link-tossing, let me know.

Thu, 10/04/2012 - 19:09 | 2857732 jimmyjames
jimmyjames's picture

A link is not an argument.

*********

A link of facts settles an argument-you didn't bother to read them-you're just a yapper-

Thu, 10/04/2012 - 19:18 | 2857767 akak
akak's picture

And you are just a brainwashed fool full of bluster and little else.

It is informative that you cannot be bothered (read: are unable) to counter my facts, so you resort to bluffing by throwing internet links out instead.  If you have a point to make, MAKE IT, or get the Hell out of here and stop cluttering up the forum with your (deflationary) nonsense.

"The USA was not on a gold standard in the early 1930s" --- LOL!

Thu, 10/04/2012 - 19:33 | 2857808 kito
kito's picture

with all of the shit going on in the world, how do both muster enough energy to volley regularly like this......................

Thu, 10/04/2012 - 19:44 | 2857837 akak
akak's picture

Oh, I manage to do my share off-line as well!

(Hint: you do NOT want to be a bad or distracted driver anywhere near me on the road!)

Thu, 10/04/2012 - 19:36 | 2857816 jimmyjames
jimmyjames's picture

It is informative that you cannot be bothered (read: are unable) to counter my facts,

*******

Too fucken funny

Thu, 10/04/2012 - 19:07 | 2857723 HungryPorkChop
HungryPorkChop's picture

Yep, just look up Executive Order 6102 issued April 5, 1933 by the Prez.  Turn in your gold or hang out with the local chain gang for a few years swinging a pick.

In theory, we were on the gold standard until Tricky Dicky took us off in the 1970's.  A few years later high interest rates hit home! It was common for mortgages to be upwards of 16% or higher.

Thu, 10/04/2012 - 18:23 | 2857580 jimmyjames
jimmyjames's picture

Periods of Inflation and deflation have always been around.

**************

Yes-at one time (under gold standard) inflation and deflation were the yin and yang of economics based on trade balance-a positive trade balance brought inflation (increasing gold supply) into a productive country and it drove up wages and prices-when prices rose to the point that foreign buyers looked elsewhere for cheaper goods-the trade balance would reverse and gold would start to flow back out of the country (deflation) and force wages and prices lower until buyers returned and once again the trade balance would shift to positive-

The beauty of gold standard was it's self correcting mechanisms of trade balance-inflation and deflation were both good-

Thu, 10/04/2012 - 17:24 | 2857393 Jack Sheet
Jack Sheet's picture

Mish is unfortunatley incurable with his "hyperinflation is preposterous" and "we have deflation" dogmas.

Thu, 10/04/2012 - 17:27 | 2857405 floor
floor's picture

Don't think so

Thu, 10/04/2012 - 17:32 | 2857415 fonzannoon
fonzannoon's picture

I agree with that guy Kito that the U.S is not Weimar. I think we will end up more like the Soviet Union in the 90's.

Thu, 10/04/2012 - 18:33 | 2857612 fonzannoon
fonzannoon's picture

My Wife's family was living there so I hear the stories. Without getting too into it, the part about the tax collection was true, and people transacted business in cash and hoarded cash. So you wake up one day and they change currencies. People who had money in the bank were able to exchange their currency (at a devalued rate). Anyone with cash had to basically throw it away or burn it. It was useless.

Thu, 10/04/2012 - 18:42 | 2857640 kito
kito's picture

very hard for many to transact in cash.....there is very little floating around....if most decided to transact in cash, the country would immediately find itself with serious shortages.....govt would quickly do what they did in italy and spain.....ban all cash transactions above a certain amount.......people in the u.s. are just not liquid.........

Thu, 10/04/2012 - 18:51 | 2857663 fonzannoon
fonzannoon's picture

For the most part I'd agree but it depends on your vocation. I know many people in different trades that probably could hypothetically transact in cash anytime they want. I obviously frown on this (frown face)

edit - by the time they dumped the currencies people had tons of cash. My barber (and I believe him) said his Dad threw out about 40k worth of useless cash. They just took it out in a big pile and threw it in the garbage. They were not alone.

Thu, 10/04/2012 - 21:05 | 2858008 blunderdog
blunderdog's picture

The easier it is to do your business in cash, the poorer you're likely to be.

Thu, 10/04/2012 - 17:16 | 2857374 Fix It Again Timmy
Fix It Again Timmy's picture

Kirstie Alley did a sexy spin on DWTS!  All is well! Stand down....

Thu, 10/04/2012 - 17:21 | 2857388 Darth Mul
Darth Mul's picture

I'm not saying she's fat...  but I hear her ass has its own AIPAC lobbyist.

 

Thu, 10/04/2012 - 18:13 | 2857545 Red Heeler
Red Heeler's picture

I'm not saying she's fat either, but that belt she was wearing looked like an asteroid belt.

Thu, 10/04/2012 - 17:32 | 2857414 mayhem_korner
mayhem_korner's picture

 

 

The seismograph registered the spin at a 3.2.

Thu, 10/04/2012 - 17:27 | 2857404 tickhound
tickhound's picture

The author's list of factors all contribute to accelerated money printing BUT...

Whatever the preceding factor or cause, the 'event' necessary for hyperinflation is the extreme loss of confidence in the currency that may accompany and follow the rapid increase in the money supply. 

 

Thu, 10/04/2012 - 17:30 | 2857411 floor
floor's picture

And then we are talking base money, all in the hands of government, so is not going to happen with the US$

Thu, 10/04/2012 - 17:50 | 2857413 Turin Turambar
Turin Turambar's picture

After reading this guy's recent post misunderstanding basic Austrian economic positions and theory, I have very little interest in reading an elaborate hodgepodge of various schools and theories. Methinks he likes to talk in order to hear the sound of his own voice.

Hey John, why don't you take a break from writing and study up a little, so when you write something, it is economically and logically sound and written with clarity?  Have you ever read Human Action?  I would guess the answer is no.

 

Yeah, I know I'm being a bit harsh, but I watched that damn debate last night, and I've had it with people talking out of their ass about things they don't understand completely.  There's zero reason to try and overcomplicate hyperinflation, unless you're just trying to show people how clever you are.

Here are 2 hints:
1.  money is non-neutral

2. there is no quantitatively definite relationship between changes in money supply and prices

 

 

 

 

Thu, 10/04/2012 - 18:17 | 2857560 Aziz
Aziz's picture

Yes I have read Human Action. Disagreeing with (some of) it does not mean misunderstanding it. I actually think Mises was a rather brilliant man, particularly his work on Socialism, I just prefer Menger's inducto-deductive theoretical methodology to Mises' praxeology. Practically this is only really a small difference. 

Your second point is wrong. There is a quantitatively definite long-term relationship between money supply and prices.

http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Rece...

But as I explain, there is more to it than that.

Thu, 10/04/2012 - 19:06 | 2857677 Turin Turambar
Turin Turambar's picture

"Your second point is wrong. There is a quantitatively definite long-term relationship between money supply and prices."

 

You are completely wrong here, and that's exactly why I pointed it out.  While there is a qualitative aspect to the relationship, there is no quantitatively definite one.  For example, in one scenario when the money supply is increased 10%, prices might increase only 6%; yet in another scenario, a 10% increase in the money supply might result in an 8% increase in prices.  Money is non-neutral, so you will not have a quantitatively definite relationship.  If you don't understand this, then you really should go back and re-examine your basic philosophical presuppositions regarding economics because you are in error.

 

Dr. Jeffrey Herbener has a very good lecture series on Austrian Economics over at LibertyClassroom.com.  You might find it useful to review the 1st 3 lectures, since they lay the philosophical foundation for praxeology. 

 

 

 

 

Thu, 10/04/2012 - 19:34 | 2857811 Aziz
Aziz's picture

If by quantitatively definite relationship you mean 1:1 then no that is not the case. Nonetheless the relationship is clear.

As I note it is a multivariate equation with four key variables: supply and demand for money, and supply and demand for whatever else is being exchanged. This is why you get some variation. 

Thu, 10/04/2012 - 20:38 | 2857914 Turin Turambar
Turin Turambar's picture

"If by quantitatively definite relationship you mean 1:1..."

 

Okay, so you don't even know what "quantitatively definite" means...sigh...

In the future, before you attempt to point out and correct purported errors on my part, please have some clue as to what I am talking about.  I hope this isn't a habit of yours.  It's not good for one's credibility.

One other thing, it's been said that many an economist are frustrated mathematicians.  I hope it's self-evident to you that functions and other various mathematical equations are insufficient in encompassing the range of Human Action, and as such, they are inherently misleading as to the accuracy and nature of the information they are purported to portray.  This error also extends to the use of statistics, since, aside from ceteris paribus thought experiments, it is not reasonable to assume that 2 or more seemingly similar scenarios would be homogeneous members of the same class.  There are bound to be some differences in the details of the scenarios.

Thu, 10/04/2012 - 23:14 | 2858241 kito
kito's picture

what kind of money is non neutral? debt based fiat or gold (or gold backed)???? methinks there is a difference.......

Fri, 10/05/2012 - 08:45 | 2858884 Turin Turambar
Turin Turambar's picture

"You keep using that word. I do not think it means what you think it means."

---Inigo Montoya

 

Definition of 'Neutrality Of Money'

An economic theory that states that changes in the aggregate money supply only affect nominal variables, rather than real variables; therefore, an increase in the money supply would increase all prices and wages proportionately, but have no effect on real economic output (GDP), unemployment levels, or real prices (prices measured against a base index).

 

Kito, can you see now why money is non-neutral?

Fri, 10/05/2012 - 15:42 | 2860781 Thisson
Thisson's picture

Can you please find a way to provide information without being such a raging asshole about it?

Just because you're educated on a topic doesn't mean you have to be a dick about it.  What we need to do is educate people and find solutions; not alienate them from our cause.

Sat, 10/06/2012 - 10:50 | 2862651 Turin Turambar
Turin Turambar's picture

Well aren't you Mr. Hypersensitive. :-)

Fri, 10/05/2012 - 04:57 | 2858586 Aziz
Aziz's picture

One other thing, it's been said that many an economist are frustrated mathematicians.  I hope it's self-evident to you that functions and other various mathematical equations are insufficient in encompassing the range of Human Action, and as such, they are inherently misleading as to the accuracy and nature of the information they are purported to portray.  This error also extends to the use of statistics, since, aside from ceteris paribus thought experiments, it is not reasonable to assume that 2 or more seemingly similar scenarios would be homogeneous members of the same class.  There are bound to be some differences in the details of the scenarios.

Yes, I agree with Mises' critique of the Walrasians and neo-Walrasians who deal in faux-rigor. In fact I reached the same conclusions independently years ago before I read Mises. I disagree with his solution of formulating fundamental laws via a priori reasoning from axioms. I think the same problem of faux-rigor applies to verbal reasoning. I don't think there are fundamental laws of human action at all, so actually I go further than Mises. I think there are underlying realities, and there are certain generalisable principles (so long as they are used cautiously), but that is not the same.

Thu, 10/04/2012 - 17:33 | 2857417 jimmyjames
jimmyjames's picture

There are zero cases of gold-denominated hyperinflation in history; gold is naturally scarce.

*************

There was once upon a time a silver hyper-inflation during the bimetallism era-after the governments locked silver to gold at a 15-1 ratio-

Thu, 10/04/2012 - 17:38 | 2857436 Bastiat
Bastiat's picture

Not a serious historian but I've read the Spain was ruined by inflation from the inflow of precious metals from the Americas.  Not hyper though.  More a case of the society being undermined through easy over-abundant money and misallocation of capital.

Thu, 10/04/2012 - 17:46 | 2857457 akak
akak's picture

Yes, Bastiat, that did happen to Spain (and Portugal) in the 16th century, and was known as "The Price Revolution".  Due to the great influx of precious metals (but mainly silver) that were looted from the Americas, the overall price level rose by around 400% in the span of about 50 years --- an unprecedented event by European standards.  And it is informative to note that this influx of precious metals, far from benefitting Spain, actually led to sequential national bankruptcy, stifled commerce, hindered organic business growth, and in the end impoverished Spain instead.

Thu, 10/04/2012 - 18:20 | 2857572 kito
kito's picture

so akak, in 10 words or less, how does this all end for the united states?.........................

Thu, 10/04/2012 - 18:52 | 2857676 akak
akak's picture

I will be the first to admit, I am no expert here whose opinion or knowledge means more than most others'.

My best guess for the USA?  I look for a parallel to the Argentinian currency crisis of 2001-2002 --- a sudden lock-up of the banking and financial system, followed by a ~75% devaluation of the dollar, with an economic plunge that takes most or all of a decade from which to recover, with a significant percentage of the population thrown into poverty as a result.

But given the pre-eminent role that the USA plays on the world economic and monetary stage today, things for Americans could get much worse than that.  On reflection, I think that we (Americans) would be LUCKY to merely  experience a repeat of the situation a decade ago in Argentina.

Thu, 10/04/2012 - 19:37 | 2857821 kito
kito's picture

less than 10 words....but ok...what about inflation rates?? where will inflation be at the height of trouble?

Thu, 10/04/2012 - 19:53 | 2857854 akak
akak's picture

If we are talking about a repeat of the Argentinian currency crisis of the early 2000s, or something similar, I don't know if it would even be very meaningful to talk about inflation rates, as the devaluation of the currency could very well, or even likely, happen over a fairly short period of weeks or even days.  That is why I like to think more of terms of the FINAL total devaluation, rather than an annualized rate.  The technical rate of inflation could reach, at a given moment, 10,000% on an annualized basis, and still 'only' result in a 50% or 75% devaluation of the currency if that devaluation happens rather quickly, say in a week or so.

Now, if TPTB are truly skillful, they will stretch this devaluation out over a multi-year period (as indeed is happening right now, as it has been for decades), with no real inflection point anywhere in the process.  This is the scenario that worries me more, in fact, as a sudden crisis might end up forcing real and meaningful change for the positive in our financial and monetary systems, whereas a grinding downward trajectory in the dollar and the economy will only tend to anesthetize the general population to the insults being inflicted on them.

Thu, 10/04/2012 - 17:46 | 2857435 Yen Cross
Yen Cross's picture

 You "bulls" , are going to hate me for saying this. (I seriously doubt there are many on this thread). I would not be surprised to see aud/usd on the .98, handle next week. 

  The 1hour chart is looking for some down side risk, and the 4hour chart is just chopping along. I would guess "real money", is chewing through the weak shorts, before the final assault into the "mid-low" 90's, which reflect [true purchasing] power of the Australian dollar.

 Gold has done nicely over the last week. (lot's of chop) Crude is just pure speculation,as we all know demand is down.

   I use the {aud & DXY} as " barometers", of risk. We all know dxy in itself is a pretty good risk "paint", for indirect flows that piggyback on the majors.

Thu, 10/04/2012 - 17:54 | 2857486 fonzannoon
fonzannoon's picture

Hey Yen I think we have about 3-4 weeks left of a possible dollar dead cat bounce before it starts a nose dive.

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