Guest Post: We Will Be Told Hyperinflation Is Necessary, Proper, Patriotic, And Ethical

Tyler Durden's picture




 

Submitted by Patrick Barron via The Ludwig von Mises Institute,

Hyperinflation leads to the complete breakdown in the demand for a currency, which means simply that no one wishes to hold it. Everyone wants to get rid of that kind of money as fast as possible. Prices, denominated in the hyper-inflated currency, suddenly and dramatically go through the roof. The most famous examples, although there are many others, are Germany in the early 1920s and Zimbabwe just a few years ago. German Reichsmarks and Zim dollars were printed in million and even trillion unit denominations.

We may scoff at such insanity and assume that America could never suffer from such an event. We are modern. We know too much. Our monetary leaders are wise and have unprecedented power to prevent such an awful outcome.

Think again.

Our monetary leaders do not understand the true nature of money and banking; thus, they advocate monetary expansion as the cure for every economic ill. The multiple quantitative easing programs perfectly illustrate this mindset. Furthermore, our monetary leaders actually advocate a steady increase in the price level, what is popularly known as inflation. Any perceived reduction in the inflation rate is seen as a potentially dangerous deflationary trend, which must be countered by an increase in the money supply, a reduction in interest rates, and/or quantitative easing. So an increase in inflation will be viewed as success, which must be built upon to ensure that it continues. This mindset will prevail even when inflation runs at extremely high rates.

Like previous hyperinflations throughout time, the actions that produce an American hyperinflation will be seen as necessary, proper, patriotic, and ethical; just as they were seen by the monetary authorities in Weimar Germany and modern Zimbabwe. Neither the German nor the Zimbabwean monetary authorities were willing to admit that there was any alternative to their inflationist policies. The same will happen in America.

The most likely trigger to hyperinflation is an increase in prices following a loss of confidence in the dollar overseas and its repatriation to our shores. Committed to a low interest rate policy, our monetary authorities will dismiss the only legitimate option to printing more money — allowing interest rates to rise. Only the noninflationary investment by the public in government bonds would prevent a rise in the price level, but such an action would trigger a recession. This necessary and inevitable event will be vehemently opposed by our government, just as it has been for several years to this date.

Instead, the government will demand and the Fed will acquiesce in even further expansions to the money supply via direct purchases of these government bonds, formerly held by our overseas trading partners. This will produce even higher levels of inflation, of course. Then, in order to prevent the loss of purchasing power by politically connected groups, the government will print even more money to fund special payouts to these groups. For example, government will demand that Social Security beneficiaries get their automatic increases; likewise for the quarter of the population getting disability benefits. Military and government employee pay will be increased. Funding for government cost-plus contracts will ratchet up. As the dollar drops in value overseas, local purchases by our overextended military will cost more in dollar terms (as the dollar buys fewer units of the local currencies), necessitating an emergency increase in funding. Of course, such action is necessary, proper, patriotic, and ethical.

Other federal employee sectors like air traffic controllers and the TSA workers will likely threaten to go on strike and block access to air terminal gates unless they get a pay increase to restore the purchasing power of their now meager salaries.

State and local governments will also be under stress to increase the pay of their public safety workers or suffer strikes which would threaten social chaos. Not having the ability to increase taxes or print their own money, the federal government will be asked to step in and print more money to placate the police and firemen. Doing so will be seen as necessary, proper, patriotic, and ethical.

Each round of money printing eventually feeds back into the price system, creating demand for another round of money printing ... and another ... and another, with each successive increase larger than the previous one, as is the nature of foolishly trying to restore money’s purchasing power with even more money. The law of diminishing marginal utility applies to money as it does to all goods and services. The political and social pressure to print more money to prevent a loss of purchasing power by the politically connected and government workers will be seen as absolutely necessary, proper, patriotic, and ethical.

Many will not survive. Just as in Weimar Germany, the elderly who are retired on the fruits of a lifetime of savings will find themselves impoverished to the point of despair. Suicides among the elderly will be common. Prostitution will increase, as one’s body becomes the only saleable resource for many. Guns will disappear from gun shops, if not through panic buying then by outright theft by armed gangs, many of whom may be your previously law-abiding neighbors.

Businesses will be vilified for raising prices. Goods will disappear from the market as producer revenue lags behind the increase in the cost of replacement resources. Government’s knee-jerk solution is to impose wage and price controls, which simply drive the remaining goods and services from the white market to the gangster-controlled black market. Some will sit out the insanity. Better to build inventory than sell it at a loss. Better still to close up shop and wait out the insanity. So government does the necessary, proper, patriotic, and ethical thing: it prints even more money and prices increase still more.

The money you have become accustomed to using and saving eventually becomes worthless; it no longer serves as a medium of exchange. No one will accept it. Yet the government continues to print it in ever greater quantities and attempts to force the citizens to accept it. Our military forces overseas cannot purchase food or electrical power with their now worthless dollars. They become a real danger to the local inhabitants, most of whom are unarmed. The US takes emergency steps to evacuate dependents back to the States. It even considers abandoning our bases and equipment and evacuating our uniformed troops when previously friendly allies turn hostile.

And yet the central bank continues to print money. Politically-connected constituents demand that it do so, and it is seen as the absolutely necessary, proper, patriotic, and ethical thing to do.

0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 01/13/2014 - 21:23 | 4329167 nmewn
nmewn's picture

Wait for it...wait for it...

Mon, 01/13/2014 - 21:28 | 4329173 Deathrips
Deathrips's picture

Learn to take care of yourself NOW.

 

Grow Food.

Water Source

Stack (Can Include Some Bitcoin and Crypto) ;)

Supplies.

Skills

 

Its comming, no matter what MDB says!

 

RIPS

 

Fonestar..we get it, just chill.

Mon, 01/13/2014 - 21:35 | 4329188 Pladizow
Pladizow's picture

Martin Armstrong convicingly argues the opposite  - all empires end in a deflationary collapse.

Mon, 01/13/2014 - 21:45 | 4329211 Deathrips
Deathrips's picture

My chips are on the table, the dice are rolling. I wish you luck on your bet.

I dont believe in deflationary collapse for the US..maybe a deflationary shartage of actual paper cash for a month..but thats it.

Theres too much paper printed and Ol Yellen is the dog they will shoot in the back corn shed...while paper burns in fireplaces.

RIPS

Tue, 01/14/2014 - 01:18 | 4329806 InjectTheVenom
InjectTheVenom's picture

Nothin' like some good ole hyperinflation porn on a chilly winter evening !

Tue, 01/14/2014 - 01:46 | 4329855 Boris Alatovkrap
Boris Alatovkrap's picture

You are make joke of US Inflation, but $USD will drag all other global currency down toilet vortex result in world war. Weimar and Zimbabwe is insular event, but this time is different - this time global currency is all self immolate value in massive rush for competitive volume printing. Globalists are elite ideologue of central planning not aware of systemic interdependent risk.

... but what is Boris know!?

Tue, 01/14/2014 - 02:55 | 4329926 sixsigma cygnus...
sixsigma cygnusatratus's picture

Boris my friend, you speak the truth. Many a true word is spoken in jest.  Or, In vodka veritas if you prefer.

Tue, 01/14/2014 - 08:11 | 4330177 markmotive
markmotive's picture

Same song for 5 years now. This story is getting tired.

Radical economics is dead.

http://www.planbeconomics.com/2013/04/the-death-of-radical-economics.html

Tue, 01/14/2014 - 12:18 | 4330685 Unknown User
Unknown User's picture

The article is brain-dead nonsense!

The Weimar financial crisis began with the crushing reparations payments imposed at the Treaty of Versailles. Hjalmar Schacht, who was currency commissioner for the Republic, wrote in his 1967 book The Magic of Money that it was the privately-owned Reichsbank, not the German government that was pumping new currency into the economy. What drove the wartime inflation into hyperinflation, said Schacht, was speculation by foreign investors, who would sell the mark short, betting on its decreasing value.  Speculation in the German mark was made possible because the Reichsbank made massive amounts of currency available for borrowing, marks that were created on demand and lent at a profitable interest to the bank. When the Reichsbank could not keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well.

Tue, 01/14/2014 - 17:10 | 4331750 Boris Alatovkrap
Boris Alatovkrap's picture

You are forget Kaiser is finance war expense by debt. You are want forgive Germany debt when is use debt to attack Europe, destroy 50% of France countryside and village!? Of course French is angry and demand reparation. Reichsbank is simply recover using monetization, money is lend to German war machine. Remember, all war is bankster war.

Tue, 01/14/2014 - 10:22 | 4330392 AvoidingTaxation
AvoidingTaxation's picture

World Wars 1 + 2 when Europe crashed from wolrd total domination (84% manufacturinf power in 1913) to 3th power among more than 200 contries now. Now it is barely 4th just because others are moar bad. Same scenario, but you're right Boris, Intersistemic Risk is an understated risk + politicians are morons, corrupt or puppets + new technologies like drones, 3d printing, genetic stuff, nuclear, nsa, and amazons and bitcoiners and dumb and dumber people, muslims, tribes, triads, mafias, guilds, associations, ngos, atheist, nichilist, edonist, addicts etc etc will eventually crash the system.

An epic clusterfuck

Tue, 01/14/2014 - 07:58 | 4330162 Ghordius
Ghordius's picture

Boris, "this time is different"? Really?

HY IS a danger for the USD, and arguably for the GBP. But you canNOT plan it, only court it

And one prerequisite for HY has always been... other currencies (including gold)

btw, define "globalists", if you can

Tue, 01/14/2014 - 15:19 | 4331279 Boris Alatovkrap
Boris Alatovkrap's picture

Other currency? That is exactly present problem. ALL currency is race to devalue. If all currency is devalue (even Swiss Franc), where is safe haven currency? Gold is only safe currency left because cannot be create from keyboard. Physical Gold, not Paper subject to re-hypothecation and derivation.

... but what is Boris know!?

Tue, 01/14/2014 - 15:46 | 4331384 madtechnician
madtechnician's picture

ALL currencies apart from one that is. Guess who gets the Prize for guessing which one ? Hint: The prize is a big fat fucking monkey blowing bubbles out of its ass holding a great big 'B' sign .....

Tue, 01/14/2014 - 10:34 | 4330419 RazvanM
RazvanM's picture

It happened recently in Eastern Europe (not more than 15 years ago). I know the feeling of using my money now because tomorrow will cost more. The problem is that most of regular folks will not have any money because there is no job.

Tue, 01/14/2014 - 10:42 | 4330435 madtechnician
madtechnician's picture

WW3 will be a Currency War. This is already being played out right now. Nuclear Armageddon will not happen because nobody can profit from it. Much easier to create multiple parallel currency wars that can be manipulated and controlled for optimum profits. Creating global nuclear war for profit's is not an option , apart from everybody being killed there won't be anything left to spend the profit on.

Tue, 01/14/2014 - 03:03 | 4329934 q99x2
q99x2's picture

Jesus is coming if you buy my book.

Mon, 01/13/2014 - 21:43 | 4329213 seek
seek's picture

Every hyperinflation is preceded by a deflationary collapse. He's just saying the empire has "ended" before the currency is worthless.

Any fiat currency backed by a empire that has ceased to be is going to go through a brief hyperinflationary phase before no one at all accepts the currency anymore.

Mon, 01/13/2014 - 22:05 | 4329252 Deathrips
Deathrips's picture

Seek,

 

Im down with that. I actually agree.

 

Let me try laymans here.

 

While the last "physical" dollars are spent, they may have more intermediate purchasing power. I think that will be short lived and the government will order direct fed debt monetization (I know they are/have been already). It is at this point, when there are no clothes on the emperor, that currency is inflated away till no one takes it in exchange for value delivered anymore.We are rapidly approaching the global full monty. All 21st century paper currencies are benchmarks against eachother with an intrinsic value of toilet paper. This will not be isolated to the USD.

 

I guess the inflation vs deflation arguement is like a chicken or egg. One does lead to the other.Currencies dying because they are too valuable..just doesnt sound right.

Inflationary collapse brings a new backed note currency with better spending power, deflationary.

Deflationary collapse brings on hyper printers and quantum computing 0's, inflationary. I guess till its worth nothing, then its deflationary again..maybe.

 

Till is isnt.

 

My other beers getting warm...I need both hands. Double fistin!

 

Happy new years.

 

RIPS

 

 

 

 

 

 

Mon, 01/13/2014 - 22:23 | 4329312 Fish Gone Bad
Fish Gone Bad's picture

This will be the first catastrophe everyone saw coming and yet, were still swept away.

Mon, 01/13/2014 - 23:54 | 4329656 Mike in GA
Mike in GA's picture

Yep, like Katrina.  Saw it coming and sat on their asses.

Tue, 01/14/2014 - 10:17 | 4330383 PT
PT's picture

No way will I be ready in time.  Seeing is one thing.  Doing something about it is something else.

Mon, 01/13/2014 - 23:06 | 4329468 Four chan
Four chan's picture

the banks will smash their earnings of worthless fiat as usual.

after all how hard is it to create return, when your product is supplied for free

courtesy of zirp, it's created out of thin air, and all your customers have been brainwashed

sufficiently, to trade their precious lives for your no-thing. no longer able to see the master

has on no clothes.

Mon, 01/13/2014 - 22:18 | 4329256 Deathrips
Deathrips's picture

Useless post edited out.

 

+1 Tmos

Mon, 01/13/2014 - 22:08 | 4329275 tmosley
tmosley's picture

If he means deflationary collapse in terms of GOLD, then he is exactly right.  "My kingdom for a horse!" quickly becomes "my kingdom for an ounce of gold!" when force becomes fragmented and economics outweigh even bullets.

Mon, 01/13/2014 - 22:31 | 4329330 XitSam
XitSam's picture

When this happens, you will want to buy productive assets. Bakery, woodshop, farm, shampoo factory, whatever; something that produces income.  Don't buy a Ferrari or mansion.

Mon, 01/13/2014 - 22:11 | 4329281 edwardo1
edwardo1's picture

Martin Armstrong is rarely convincing, and struggles to be coherenct. He is an autodidact historian with all the attendant flaws of the self taught would be scholar. He seems to think that the present state of affairs vis in the west is all down to Marxism run amok, but, he doesn't seem to understand that it is the monetary system itself which is the source of most, if not all of our ills. The U.S. government is profligate because it can be, though not for much longer.

In the meantim if you give him thousands of dollars he'll give you a few tips (that you can get for free elsewhere) on how to avoid the worst effects of what is to come. Mr. Armstrong, it so happens, is a former jailbird, and I, for one, have serious doubts that he was simply the hapless and blameless victim of the courts as he would have us all beiieve.

Mon, 01/13/2014 - 22:26 | 4329320 Fish Gone Bad
Fish Gone Bad's picture

Marty likes to paint himself as quite the victim... just ask his victims.

Mon, 01/13/2014 - 22:20 | 4329305 Series7fold
Series7fold's picture

I agree with economist John Williams that inflation hovered around 8% from 2009-2012. Inflation now in 12% range for past year, but I don't think the US will hyperinflate. The Weimar government indexed ALL wages to inflation, not just government workers. Key differences between then and now: 1) scale of national debt, 2) scale of derivatives, and 3) extremely weak demand for labor, thus no wage increases and no demand-pull inflation. I vote extreme deflation... then currency collapse, followed by socio-economic collapse, and martial law.

Mon, 01/13/2014 - 22:30 | 4329329 Fish Gone Bad
Fish Gone Bad's picture

After the Weimar money collapsed, Germany made a new German Mark.  It was worth 1,000,000 old Marks.  From this Germany created a war machine in a few years that took the rest of the world combined to defeat it.

Lesson here?  Create new dollars that are worth 1,000,000 times the old dollars.  Problem solved.

Mon, 01/13/2014 - 22:32 | 4329334 seek
seek's picture

Currency collapse and hyperinflation are the same thing. (When currencies collapse, they hyperinflate until replaced.) Deflation normally precedes hyperinflation.

Hyperinflation has no connection to inflation, it's an entirely different phenomenon -- essentially it's the greater fool theory run amok applied to a currency, rather than the monetary base expansion associated with conventional inflation. Indeed, you can easily have hyperinflation occur even as the monetary base is shrinking, as it just depends on people viewing the currency as losing value rapidly.

So, you actually do believe in hyperinflation, and in the normal order it emerges (deflation followed by a loss of faith in the currency, triggering hyperinflation.)

Tue, 01/14/2014 - 00:03 | 4329684 Professorlocknload
Professorlocknload's picture

Succinct, there seek!   ++

It's the deflation scare that looses the hounds to begin with. Then, confidence crashes with the paper.

But, could it be, the deflation bugaboo earlier in this malaise has already set the wheels in motion?

Tough call. I'm still even odds.

Tue, 01/14/2014 - 02:23 | 4329899 EconoIdiot
EconoIdiot's picture

What does that mean if you live in a tent in Obamaville?

Tue, 01/14/2014 - 13:04 | 4329719 FEDbuster
FEDbuster's picture

The forces driving hyperinflation will come from outside the US.  When the dollar is totally rejected by those whom produce the goods and energy we have consumed for decades.  The US military has done a good job backing the dollar since 1971, but I think the rest of the world is getting tired of being our bitch.

Tue, 01/14/2014 - 01:49 | 4329862 dojufitz
dojufitz's picture

I'm with Armstrong.....his blog is very interesting. Anyone they would lock up has to be good value.

Tue, 01/14/2014 - 11:46 | 4330609 Random_Robert
Random_Robert's picture

Hyperinflation and deflation are mirror-images of the same economic phenomenon-  ecoomic decline via the destruction of the marginal utilty of ANY form of credit.

HOW this marginal utility finds its eventual destruction (whether via monetary supply explosions, or via a complete breakdown of the willingness to lend or share value)  is factually irrrelevant. The end result is always the same- borrowers suffer due to inability to borrow sufficiently,  savers (who stockpiled supplies of the credit instrument thinking they would be protected)  suffer as their savings are typically confiscated, followed by the residual value of what's left imploding to a nearly valueless state.

In such economic declines, the only ones who weather the storm are producers who produce on their own account-  this is why farmers, mechanics, and other tradesman are  typically able to barter their way through to the next expansionary period.

It's a pity more "Economists"  can't understand this in a conceptual sense, for if they could, then they would admonish the use of the terms "inflation"  and "deflation"  from Economics FOREVER.

The infamous Krugman once dared to admonish Ron Paul(!)  with a diatribe about money being "a quantum", and yet Krugman hasn't the intellect to comprehend that every quantum state is defined by a mechanical property, and also by a (single) theoretical counter-state which surrenders said mechanical state into utter flux and baselessness.

If money is a quantum, then it too must exhibit both empirical (measureable)  properties as well as wave-form variable (quantifiable, but not measurable) properties. Heizenerg's principle applies to any (and all) true quantums

Modern Monetary Theory is, by its very nature,  linear. (ergo the linear, "Progressive"  theology that underpins most Economists' point of view). The term "Progressive"  means "A bias toward advancement in a single direction, commonly  perceived to be "forward"

I mean, no one deliberately "progresses" backwards on purpose, do they?

 So, pray tell, how does a linear, progressive monetary thinker like Krugman DARE to define the output of his linear thinking (money and credit)  as a quantum?   

Human psychology is the basis of the "String Theory" of modern Economics.  Money and credit have value, until they don't; just as an electron is a particle only until it "decides"  it would rather behave as a wave (which usually occurs at the moment you try to measure it in its present state as a particle).

So,  Economists should ask themselves same question all Quantum Physicists must ask:  Is the observation (or social classification) of money actually the thing that eventually renders it worthless?"

Fascinating that the observation and classification of money typically occurs in order to initiate the social process of extracting value (wealth) from one group, in order to distribute it to another... aka: taxation.  Again with that Progressive crap... Taxation:  It's good for the soul  (?) 

I have hereby given birth to the study of Quantum Economics... Krugman should be my first student, but I'm not going to sit around waiting for the phone to ring.

 

 

Mon, 01/13/2014 - 21:51 | 4329217 DaveyJones
DaveyJones's picture

That's the thing about pitchforks

They're productive in the ground and in the air.

 

Mon, 01/13/2014 - 21:58 | 4329255 fonestar
fonestar's picture

"Learn to take care of yourself NOW."

 

You forgot old motherboards, PSUs, capacitors and RAM!

Mon, 01/13/2014 - 22:48 | 4329394 akak
akak's picture

I've RAM'ed your motherboard, and she wasn't that good --- not even worth 0.000000000001 bitcoin.

Tue, 01/14/2014 - 09:33 | 4330280 SoilMyselfRotten
SoilMyselfRotten's picture

You're such an exaggerator AKAK, Bitcoin only goes out 8 decimal places.

Tue, 01/14/2014 - 14:38 | 4331180 gallistic
gallistic's picture

Kinda reminds me of Randy Savage coming off the top rope..

No need for a count- KTFO!

Mon, 01/13/2014 - 22:08 | 4329274 SilverRhino
SilverRhino's picture

Things to STACK 

  • Ammo
  • Spare firearms
  • Blades 
  • Flour 
  • Rice 
  • Beans 
  • SALT 
  • Sugar 
  • Spices 
  • Water Purifiers (probably the ultimate trade good if water mains go down) 
Mon, 01/13/2014 - 22:56 | 4329429 DeadFred
DeadFred's picture

If you have a good enough water purification system you can trade clean water for food as long as food is around. I worry that they will tell us that starvation is good for us the way hyperinflation is. It does help with the obesity problem...

Tue, 01/14/2014 - 00:20 | 4329726 FEDbuster
FEDbuster's picture

"Gold for bread Zimbabwe"  http://www.youtube.com/watch?v=7ubJp6rmUYM

Tue, 01/14/2014 - 10:25 | 4330396 PT
PT's picture

FEDbuster :  Always a good reminder.  On a similar note, someone else once posted an excerpt from a book called, "The 900 Days" - basically trading precious metals for more sawdust in their bread.  I must read the rest of it one day.

Mon, 01/13/2014 - 23:39 | 4329610 Uncle Sugar
Uncle Sugar's picture

If you live on either coast, be sure to register your firearms, ammo and magazines so everyone is kept safe.  /sarc

Tue, 01/14/2014 - 03:15 | 4329958 The Wisp
The Wisp's picture

Pool Shock.. crystallized bleach with no expiration date. little dash purifies gallons. every prepper should have a container of it stored on a shelf some where

Tue, 01/14/2014 - 05:52 | 4330076 Socratic Dog
Socratic Dog's picture

Where do you get it?

Tue, 01/14/2014 - 06:11 | 4330080 Serenity Now
Serenity Now's picture

Walmart, Ace Hardware, or Home Depot.  But I read that it has an additional chemical that makes it unsafe for drinking water, so do your research first.....

Tue, 01/14/2014 - 11:00 | 4330492 superflex
superflex's picture

Just dont store it next to a petroleum product.

Oxidizers and fuel dont mix well.  Even used motor oil will ignite if mixed with pool shock.

Do NOT follow this link or you will be banned from the site!