This page has been archived and commenting is disabled.
How Money Creation Threatens Hyperinflation
Submitted by Patrick Barron via Mises Canada,
In order to understand the relationship between money creation and the price level, we first need to get some definitions straight.
To Austrians the terms inflation and deflation refer to money and not prices. There is no doubt that money has experienced unprecedented inflation. In February of 2010 base money was $2.1 trillion. Four years later it was $3.8 trillion. In the same time frame, M1 has increased from $1.7 trillion to $2.9 trillion. M2 has gone from $8.5 trillion to $11.7 trillion. Excess reserves have doubled from $1.2 trillion to $2.4 trillion. (Please keep in mind that prior to 2008 excess reserves seldom were more than a few BILLION dollars, which is effectively zero and represented mostly the aggregate of excess reserve cash in thousands of community bank vaults.)
To Austrians changes to the price level, what the public incorrectly calls inflation and deflation, are the result of changes to the aggregate demand for consumers’ goods and the aggregate supply of consumers’ goods. Think of a simple ratio with the numerator representing demand and the denominator representing supply. Notice that an increase in supply will cause the price level to fall. Aren’t we all happy with this? I am. Or a decrease in demand will cause the price level to fall. There can be many causes of a decrease in demand–a fall in the money supply due to bank failures, a change in subjective time preference to save more, or a rational desire to hold more cash during times of uncertainty. None of these are bad for the economy per se. Whatever the cause, the antidote to a fall in demand is falling prices. The relationship between supply and demand must be re-established.
The point I am trying to make is that it is fruitless to attempt to prop up prices with more money creation, as the unprecedented increase in all categories of money in recent years has shown. In fact, excess reserves represent the potential for a massive increase in the money supply. The ratio of mandatory reserves to M1 is around 3%. The ratio of mandatory reserves to M2 is around 1%. Just do the math to find out the mathematical potential increase in the money supply should the banks eventually be able to convert excess reserves into mandatory reserves via the lending process. Keep in mind that this is exactly what the government WANTS banks to do; i.e., make more loans to supposedly stimulate the economy. An increase in the demand for goods of this magnitude, the numerator of our simple equation, would cause the price level to skyrocket perhaps to hyperinflation levels.
Therefore,digging even deeper into our problem, one finds that legal tolerance for fractional reserve banking is at the heart of the problem:
Fractional reserves allow banks to create money out of thin air via the lending process...
Instead of funding an increase in loans by an increase in real savings, loans are “funded” by…well…nothing...
This triggers the Austrian business cycle...
Production, the denominator in our simple equation, falls...
When supply falls, prices rise...
Creating even more money will not help the situation, only exacerbate it.
Hyperinflation is a cancer that lurks in our monetary structure. Time to surgically remove it before it metastasizes.
»
- 17071 reads
- Printer-friendly version
- Send to friend
- advertisements -
There is no hyperinflation with money creation because money is circulated between the banksters.
In the end it will come from overseas when the vast sea of USDs out there picks up velocity.
FRNs are company scrip and good luck buying what you need outside the company store.
Don't throw too much money into cancer because, we are about to outlaw it soon.
"To Austrians the terms inflation and deflation refer to money and not prices. There is no doubt that money has experienced unprecedented inflation. In February of 2010 base money was $2.1 trillion. Four years later it was $3.8 trillion. In the same time frame, M1 has increased from $1.7 trillion to $2.9 trillion. M2 has gone from $8.5 trillion.......
As far as "you" or "we" know anyway. When's the last time you audited the Fed. Are you going to take their word for it? What if you happen to wake up tomorrow and find out dollars are as plentiful as seashells???
We are in a depression and the only reason prices rise is CB activities and buying (and disposing of) select assets...
http://econimica.blogspot.com/2015/03/how-to-invest-ugly-truth_30.html
http://econimica.blogspot.com/2015/03/are-seeds-of-depression-sprouting.html
taxes are the cooling rods in the nuclear pile, absorbing the excess
liquidity and preventing wage inflation.
taxes are obsolete because we outsourced our wage inflation and
middle class decades ago to the slave nations and
they are never coming back. now you can clearly see the true extent
of the foolishness of the feds actions and the misconceptions that they are operating under.
$51.2 trillion - total global market capitalization
$81 trillion - total total notional amount of all the outstanding positions in Derivatives market
$8 trillion - total commodieties markets annnual trade
TOTAL: $140 trillion in use in global markets, minimum
$4.5 trillion - total Quantitative Easing expenditures - October 2014 total accumulated assets
a 35:1 ratio of USD in use per USD in QE assets
Even the subprime fueld 2008 market crash destroyed about $5 trillion in real estate value which increases demand for the dollar and totally offsets the additional spending in QE, and assets were bought, it wasnt just pissed into the wind.
It doesnt look like hyper-inflation coming when you consider the vast ocean of demand of the US dollar internationally.
It looks like the USD is still over valued and rising in world reserve currency share.
Now, please explain to me why I am an utter fool and berift of crucial facts that you will then share with me and everyone else.
What international demand?
Almost 30 countries are using Yuan swap facilities thus ditching the US$ in their trades. Some countries setting up even their own swaps for their currencies.
The OPEC countries (according BNP Paribas) stopped recycling the US$ and now they are selling US$ denominated assets and then selling it for strengthening their currencies or buying assets.
Other things are happening to, which are US$ negative for example strong Russian,Chinese and Indian demand for gold.
In other words there is not international demand for US$ and US treasury bonds/bills, there is a strong domestic demand for these papers, which are fueled by ZIRP.
I believe example #1 suffices for challenge #2. Which one of your asses did you pull that number from?
bitcoin is laughing at the ignorants.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
How did all the Austrian economists get it so wrong for the past half decade? That's what I want to know. With all these trillions of dollars "printed" why is gold and silver still languishing?
They are being agressively "languished."
Because they have effectively created unlimited gold and silver----its a paper chit that supposed to represent gold and silver. As long as idiots think thats a claim on something, they will be traded accordingly. Also, when you have infinite dollars at your disposal, you can short the shit out of anything you want, including said gold and silver paper.
Alchemy was the turning of lead into gold. They did even better, they turned PAPER into gold!!
Nostradamus: (Cent. 8 Quat. 28)
Les simulacres d'or & argent enflez,
Qu'apres le rapt au lac furent gettez
Au desouvert estaincts tous & troublez.
Au marbre script prescript intergetez.
Translates as:
The copies of gold and silver inflated,
which after the theft were thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scripts and bonds will be wiped out.
That's a good one... is there a lake near the Fed? OR there is one near the CME
the bis's pond of internatinal settlements.
It's the lake under the Fed they should be concerned about...
"Alchemy was the turning of lead into gold. They did even better, they turned PAPER into gold!!"
That's because they bet that people are dumb and greedy. Boy, were they wrong! Oh, wait...
Step 1: Create a private cartel of currency creation for all sovereigns. Financial Sin/DEBT is created.
Step 2: Atonement fees for said Debt are paid as Taxes by Citizens.
Step 3: Debt = Control + Slavery (via Wealth Transfer Mechanisms)
and... Permanent Debt = Permanent Control + Slavery
As part of the Debt & Control cycle, Governments grow and keep expanding both Debt and Control -- using ANY convenient pretext, ruse, lie or deception that works.
When all relevant wealth has been transferred from the weak, scared, lazy, uninformed and disorganized Many (98%) to the strong, fearless, diligent, informed and organized Few (the Special 2%), the curtain can/will be pulled back, and the NWO of Feudalism 2.0 will be revealed:
Peasants, meet your New Masters... same as your Old Masters.
Gold went from 40,000 to 90,000 Rubles in 2014. What are you fools talking about? It all depends on the fiat in question.
We never paid the piper, and now all that needs to be paid are the consequences.
It is a misconception to think that hyperinflation is caused by money printing. Hyperinflation does not come about simply because of money creation Hyperinflation occurs when suddenly nobody wants your currency. So long as demand is there the government..excuse me "Independent Central Bank" can create as much as they want. The entire US could thrown into hyperinflation tomorrow if the Chinese Politburo simply uttered these 3 words "No More Dollars"
really well stated.
NOW you got it, grasshopper!
Which is exactly why I've been saying for many months, that Cheney was right that "Debts don't matter", as long as YOUR currency is the Global Reserve Currency (GRC).
When you got the GRC, the whole freaking World is accepting your Company Scrips and NSF Checks.
Pretend you are in their shoes: YOU get to print money at home and write NSF checks that the whole world is accepting. And even though people are getting more and more suspicious and you get more and more funny looks, and unflattering comments, you just keep printing your Funny Money and issuing checks. Till they refuse to take your paper, you just keep hiring body guards*, and buying their goods, properties and services. Why wouldn't you?
* Guards = equiv. of Police, Judges, Soldiers, Spies -- to front-run or control almost any situation, trouble-maker, group, CEO or politician.
It is good to see that the quantity theory of money is finally getting junked.
I'll only add that money is considered money because its demand approaches the infinite.
Money is most precious.
The US does indeed have an exorbitant priviledge while its worthless scrip is 'money good'.
The Austrians are 100% correct in their analysis. Only they did not account for modern day computerised financials which could delay that day of reckoning. The day of reckoning is getting closer (the minsky moment , the point of no return when the credit (debt) ponzi goes into reverse). Congratulations to the gold bugs who spotted it. Only they will be fucked because the new system will actually fold into crypto digital currency which is far more compatible with a high speed digitised global economy. Gold is useful as a mirror or something - maybe a tooth ? But it will be otherwise useless as money.
So you're saying sometime soon (< 5 years or something?) Gold's 5000-year run as the premier money of the world is going to magically come to an end entirely, except apparently for mirror manufacturers and dentists, while an ethereal concept-number will take its place? I hope you won't be offended if I go down to my dealer on Friday and pick up another Eagle.
Go talk to some schmo on the street. Ask him if gold is valuable. Then ask him if bitcoin is valuable, or if he even knows what it is. Ask them whether they'd rather have an ounce of gold or 100 bitcoins. I'm not really interested in an exposition on how their answers are only because the masses are ignorant...the masses are the masses and they are there and they are the ones we have to deal with. They already have a good idea of the value of gold (or at least that it IS valuable) and they trust it. Not so much with the BitCoin.
BTC has a LOT of work to do before it's going to supplant Gold among the vast majority of people, and it likely will never go beyond fad status unless they can do far better than I've seen so far. Inertia is a powerful thing.
"some schmo on the street" ??
If that really is the best you can come up with - then I am even more bullish than ever on bitcoin.
Good luck wallowing in your ignorance.
BTC is interesting but you'll always have to explain it and convince people of it's value ... Anything digital can be faked , anything digital can be hacked , paper currency can be easily evaluated by a store clerk who questions it's authenticity making it MORE valuable than your ones and zero's ... from what I know of it I like the current system better ... even that needs much improved security to get up to where it needs to be but it's understandable.
How do you buy a cart full of groceries with BTC? The stores don't trust it , they don't take it ,, lets say you have a store that takes it ... what happens if you have a problem and it takes a day to reconstruct your chain? What do you do if there is no internet access? What do you do if China attacks the system? What do you do when your machine glitches out and you need something RIGHT NOW? I know I can build a machine that will fit easily in a handbag that will play hell with your BTC machine... It'd be fun to watch.
Digital isn't ready for prime time.
Even more bullish after reading that drivel.
Does Bitcoin require a computer in the transaction?
After and EMP or grid down situation keep your Bitcoin. How much ammo can I get for the gold filling I just pulled out.
The Cave Dwellers are out tonight. Even multiple global EMP's would not dent the bitcoin network. Good luck wallowing in your ignorance. Now , get back down into your damp basement , there is another 30 year old cold can of prepper food waiting for you.
I wish I could upvote you more. In all fairness, BTC is difficult to understand, I had to watch a ton of videos and read dozens of articles until it finally "clicked". Crypto-currency will eventually replace paper currency, but the technology still needs more development and the masses need more education on the concept.
The Austrians are correct but they did not anticipate that the banks would not use the existing mechanisms of making loans to businesses and such to create their wealth ... using the captive government us the counterparty and retaining all the 1111's and 0000's in their 'puters delays the inevitable collapse while actual currency is kept at a small fraction of the total float in the system... I disagree that a crypto currency will take over ,,, there is far too much risk in that and it demands too much infrastructure and coordination... If BC gets to be a player putey pute will crash it. Gold and Silver will remain relevant as they have no counterparty risk , they rely on noone and are not easily counterfeited.
I'm looking for a mortgage ,, a jumbo ,, I can't wait to pay off the balance with a stale loaf of bread and an almost empty can of coffee. That time will come ,, I'm OK with making payments for a few years just to recoup all the FED has stolen from me over my lifetime by putting their inflation to work for me for a change instead of them.
Thought about the mortgage idea a lot, but I always come to the conclusion that you will stay a slave as long as you participate in the charade.
I also thought this recurring "stack dat phyzz" theme around here was weird, but it really seems like a proper way to oppose the moneyprinters. At least I can't think of many alternatives.
Bitcoin? Look into it properly or just shut up, this uninformed gibberish most people are spouting is disgusting. This is true technological innovation, unlike many recent tech-IPOs, here real value is created for a lot of people. By reducing it to it's price you're acting just like the greedy fucks you so much despise.
Austrians don't seem to realize we live in an empire with a currency backed by a massive military and nuclear arsenal.
Stop using it, and we just might have to liberate your people.
Also, most of the "printed money" isn't being given out to people who will go spend it.
empire with a currency backed by a massive military
So were -
The Greeks
The Romans
The Baylonians
etc - etc - etc.
They all failed miserably - beleiving a massive military force meant their empire would never end , in fact it having a massive military actually signals the final days of Empire.
Even a child can work it out. If your "system" is so wonderful and everybody loves it so much then surely you don't need to back it up with military force. Once massive military force is required to sustain your system then you are already on the losing side.
The money is parked in excess reserves. They get paid by the FED .25% on those reserves.
Too late, tumor cells already circulating throughout the body, and metastasizing in the blood and bone marrow.
Irony: The Austrians keep repeating themselves, laying out the conditions necessary to create hyperinflation. When those conditions are more than amply met, and hyperinflation fails again to appear, the Austrians repeat themselves again. Logically, this is called Argumentum ad Infinitum, and it's a logical flaw.
For those of you still hanging around and waiting for hyperinflation, be aware that you are waiting for a tail event--which you can hedge against, but by definition cannot be predicted. Ergo, waiting around for it is pointless.
Obviously, hyperinflation is not merely an event tied to changes in the money supply. It's a socio-behaviorlal phenomenon.
Hyperfination has a much better chance of getting established in a domain where there has been zero money supply inflation, but a collapse of social, economic, or politcal confidence takes place.
I've grown tired of the confirmation bias here at ZH--though the articles are still better than the commenters.
GG
PS: Ask yourself the following question: given some of the seriously bad events in US history the past 100 years, with none of them triggering hyperinflation, what event would it take--and what is the *probability* of that event taking place?
p.s. - Loss of faith in the Dollar and the U.S. - which is already occurring. 20 years ago we had Glass-Steagall, 44 years ago the dollar was on the Gold standard, and 60 years ago the U.S. had productive capacity, factories, and skilled labor. That's all gone now, so history means nothing here, as we have never been here before.
The more relevant model is that of a heroin addict, who will sooner or later die from their addiction, or make a very: slow, long, painful recovery - and never be the same. The fact that the heroin addict is currently alive and apparently happy means nothing.
Loss of faith in the US--which is a very good term--usually has come around deep political scandals or wars after WW2. Vietnam, Nixon, Clinton's impeachment, the Iraq War. So the last time the Dollar was really under some pressure was LAST decade. It's not under pressure now. There is little if any indication of any global loss of confidence in the US. In fact, the world probably thinks *too highly* of the US is anything! C'mon, you gotta laugh at that.
We know the US Dollar regime will eventually change, and expire. You should have much lower confidence however that this is imminent, or will even happen in your lifetime.
GG
Gary, thumbs up for your original post. Consider though that in the last 18 months the US has sponsored a coup in the Ukraine and is arming the current government in their civil war against mainly Russian speakers and they are sponsoring and supporting the Saudi's to bomb and invade Yemen. In the last 24 months they have tried to instigate a bombing campaign against Syria while funding and arming a civil war in that country.
These wars (so many in such a short period of time) and the US involvement in them and fuelling them leads me to conclude that the world is already turning away from the dollar and the US is violently acting out attempting to hold their dollar regime together. It is happening right now in our lifetimes.
I would point you to an article such as this:
http://www.zerohedge.com/news/2014-08-14/world-reserve-currencies-what-happened-during-previous-periods-transition
And considering the other factors I mentioned, in my lifetime and sooner than most think.
Not just political decay, but moral and ethical; Rome fell not because of economics or politics but because she lost her soul. I see the same occurring rapidly in the New Rome.
This is not so... for many years zealots in Judaism were waiting for the Messiah, but then they learned that could recreate the conditions mentioned in the ancient texts - therefore the wait will not be long.
Another financial crisis or world war would do it.
I consider both inevitable - 100% probability of occurring. Just don't know when, but I suspect by 2030 unless some radical (and basically magical) energy source is discovered.
Record numbers of people on welfare/disability. That qualifies as societal collapse, in slow motion.
Historically speaking, this is actually a fairly rapid collapse. We think of the collapse of Rome being when Alaric sacked the city. In actuality, it was Rome's long festering rot that made it possible for him to do so.
Yeah, the Romans hollowed out their military and drove their citizens into flight into German tribal nations, renouncing their own citizenship in order to escape the heavy taxes.
The Romans relied on a well designed system of forts and roads behind huge rivers to keep the barbarian German tribes out, and actually required few people to actually man the system. So everything was cool...until 406 AD when the winter got so cold the Rhine river froze.
Then it was like 'oh, shit!' but in Latin.
That's an easy one. The probability is zero until a truly massive deflation occurrs first. It would require a greater deflation than any on US history to happen when interest rates are already zero, and the Fed is out of bullets. Then the radical political response - changing the currency system from debt-based fiat to direct-issue fiat - will ultimately result in hyperinflation after things play out along a very predictable path over decades, and will probably require the massive expenditures needed to survive a third world war as well.
which austrians are you talking? - who talk about hyperinflation?
Mises talks about a "crack-up boom / bust".
read gary northi on hyperinflation for what seems to me to be represenative of the austrian view on hyperinflation - unlkiely he says.
In the near future it shall be a rare and exotic to have on hand quality toilet paper while extruding one's feces.
Zirp is a tax on savers that goes directly to the FED , BANKS, AND TREASURY
YOU ARE BEING TAXED JUST LIKE ALL OTHER TAXES INCLUDING OBAMACARE.
WHY aren't people marching in protest.......
Fuck it.
Most savers are retirees. They either have enough and/or are brainwashed by watching the perpetual war channel.
Nah, cant happen here...U.S.A U.S.A we are exceptional and immune to such trivial things..
What bad events happened in US history in the past 100 years?
Pearl Harbor? Not that many dead, and a few obsolete battleships damaged. Nothing that wasn't fixed in 6 months.
9/11? Worthless. What was the GDP damage of that? What % of the US population died? Not even 2 decimal places worth.
Bay of Pigs? Worthless.
The Cuban Missile Crisis? Who died? Nobody.
The worst event in the US in the last 100 years was the Great Depression, which was brought about directly by the Federal Reserve.
Various battles in World War II ? Again, what % of the population died? Not enough to get to 1%.
The US has lived a charmed life, in terms of GDP damage, and people dead. Nothing even close to what the Germans, French, British, Japanese and Russians endured around WWII time.
The probability of any event wiping out 10% of the US population and a proportionate amount of GDP is very close to ZERO. The highest probability right now is nuclear war, triggered by the US's own inept actions.
A "big one" on the West Coast could kill 5-10% of the population, depending on the time of day it hit. Is the San Andreas capable of such a big one?
Nuclear War could kill 80-90%, if the opponent is a superpower.
And a lot of that death would not be from the actual detonations or even the fallout. A lot of it would be simply because of the lack of functioning infrastructure. Even in a very "limited" exchange, there is a very good chance that the power grid would go down for good. No refrigeration is something that people today have no clue how to deal with. Same with no running water.
Helicopter money, or substittues.. I like the gov giving coupons for goods and services to reduce inflation from helicopter money.... but they won't do something smart like that... eventually some states will do helicopter drops and other nations will demand it... and just as everyone deflates, all nations will be handing out cash.
One thing I have learned over the years is not to trust or listen to ZH for advice in the stock market.
I believe ZH has the worst track record ever! Do the opposite and you may make a couple of bucks.
I already did the same thing with the Fed, and made a ton.
Negative rates, let me tell you a story about a mother in law who had a friend that wanted to invest 1 million dollars with her daughters husband that works for a major brokerage firm.
The guy said 1 million is not enough. Of course, he and his wife live in Beverly Hills, CA.
Who in their right mind would turn down a 1 million dollar Invester?
Those would be fiat dollars right, good today but useless tomorrow, yeah we know all about those, good luck suckers.
My minimum used to be $100k , $1m means he personally rakes in at least $20k on that account each year and if he steers it into the right products he could take 12% or more off the top... From the "daughters husband" comment I'm inferring that these aren't elderly people or otherwise "dangerous" from an ethics viewpoint to work with. I'd take them in a moment...
sure... buy at the top - I mean bottom...
The guy who wrote that is a blathering idiot.
The Bank of England Corrects a Widespread Myth
YOUR TEXTBOOKS LIED TO YOU – THE MONEY MULTIPLIER IS A MYTH
There is a difference between legal tender currency and credit used as currency, that difference is the basis of fractionally reserved lending, which the people at Mises consistantly fail to consider. So much so that I'm begining to think they are nothing more than controlled opposition...
Right, so some dollars should DEBT stamped on them, while others have EQUITY... but in USA's case.. they would all say debt
It constantly amazes me how totally qlueless people are when it comes to understanding "our" monetary system.
"Credit dollars are a debt generated currency that is denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange. As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply." ~ Federal Reserve
Why does the Fed count 'credit', which is primarily BANK DEBT, as if it were money and include it, even though they admit it isn't, as being part of the 'money supply'?
"Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them." ~ U.S. Treasury
controlled opposition...?
Move to the head of the class!
http://redefininggod.com/2015/02/globalist-agenda-watch-2015-update-15-l...
The masses now will beg for QE directed at the populations... what will politicians do??? Give it to them... or beat them with batons and starve them?
There must be helicopter money!!
relinkin' from manipulism ..
.
Caravan To Midnight - Episode 250 Patrick Wood: Technocracy Rising
https://www.youtube.com/watch?v=H7QlOTi86Nk&feature=youtu.be
.
the money system demands expansion or failure so great
institutional debt is offered up. this won't even
play out well never mind end well.
https://www.youtube.com/watch?v=JUvm9UgJBtgDirected by "Zion Meyers"?? uncanny
Wait a minute. There is no relationship at all between "base money supply" and the amount of lending. Banks do not multiply base money. They create money out of nothing with an offsetting debt. Reserves are only needed to make payments to external banks. Therefore, QE does not and cannot create inflation. Bank reserves only circulate among the banksters and never reach the general public. Bank lending is constrained only be regulatory requirements of capital. If the government wanted to create inflation, they would have to increase ordinary government expenditures.
or debt free money.........
Honest to God. A fucking idiot could understand this.
Yet through laziness, probably brought on by money printing, (think about it...easier and easier money to people who had to work less hard to get it...over time you get lazy) we put our faith in politicians and now nobody understands this.
Screwed, we are. By ourselves.
Ugh.
Capitalism, huh? Capitalism, my ass. Capitalism is an idea the elites made up to make your poor ass believe you can get ahead while they practice their socialism. They get money for free, at no interest, and then they loan it out to you and make interest income from it. Thats Capitalism, baby. And you ain't no Capitalist until you are the one loaning the money, not borrowing it.
Read the Public Bank Solution and your whole perception of currency will change. Hyperinflation directly links to private banking.
Bitcoin holders are not affected.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
Ludwig von Mises
[Human Action, Regnery, 1966, p. 572.]
First the boom...then the bang followed by lots and lots of blood
Onward through the fog