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THERE’S Your Hyperinflation!
by Keith Weiner
Hyperinflation is commonly defined as rapidly rising prices which get out of control. For example, the Wikipedia entry begins, “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency…” Let’s restate this in terms of purchasing power. In hyperinflation, the purchasing power of the currency collapses. Before the
onset, suppose one collapsar buys ten loaves of bread. Soon, it buys only one loaf. Shortly thereafter, it buys only one slice. Next, it can only purchase a saltine cracker. Pretty soon the collapsar won’t buy any bread at all. Stick a fork in it, it’s done.
For example, the price of crude oil was cut almost in half (so far). There’s little to see if one looks at the purchasing power of the dollar, euro, Swiss franc, etc. Purchasing power, as conventionally understood, is doing just fine.
Fed apologists are happily cooing about this. Last month, Nobel Prize winning economist Paul Krugman said, “This is actually wonderful.” Last year, he was gloating, comparing people who predict runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.”
And yet, all is not well in the realm of the central banks. Krugman may be right about prices, but nothing is wonderful. The economic downturn, which began in 2008, has been so bad that central banks persist in their unprecedented monetary policies. So if purchasing power isn’t collapsing, where can one find evidence of the problem?
Yield Purchasing Power (YPP) shows how much you can buy, not with a dollar of cash, but with the earnings on a dollar of productive capital. No one wants to spend their life savings or inheritance. People are happy to spend their income, but not their savings.
To come back to the analogy of the family farm, people should think in terms of how much food it can grow, not how much food they can buy by selling the farm. The tractor
is good for producing food, not to be exchanged for it. Why, then, do people think of the purchasing power of their life savings, in terms of its liquidation value?
If they want to live long and prosper, they should think of their yield purchasing power. Their hard-earned assets should provide income. And it is here, that hyperinflation has set in.
Previously, I compared two archetypal retirees. Clarence retired with $100,000 in 1979, and Larry retired with $1,000,000 in 2014. Clarence was able to earn 2/3 of the median income in interest on his savings. Larry was nowhere near that. He would need over $100 million to do the same. In 35 years, the YPP of a 3-month CD fell more than 1,000-fold.
The collapse in YPP suggests an analogy to hyperinflation. Look at how much capital you need to support a middle class lifestyle. Measured in dollars, the dollar price of this capital is skyrocketing.
This skyrocketing price of capital has the same effect as hyperinflation: it undermines savings and causes people to eat themselves out of house and home.
What does this mean for anyone with less than what they need to support themselves—$100M and rising? They must liquidate their capital, and live by consuming their savings. It’s terrifying to anyone in that position—which means anyone in the middle class.
This problem is not well understood, because it masquerades as rising asset prices. The first tractor to go to the block fetched $1,000. The second went for $2,000. The farmland may fetch a few million. Everyone loves rising asset prices, and so in their greed and euphoria they miss the point.
This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.
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'people should think in terms of how much food it can grow, not how much food they can buy by selling the farm'
This is called sustainability, which means working in absolute harmony with nature, the productive assets can be passed to the next generation, we could halve the hours we currently work and have a far superior quality of life interacting with nature. The abolition of the Financial/Healthcare/Millitary/Food/Energy/Government systems is to be the NWO.
Gold And Silver Are Paper-Slammed; Is The System Collapsing?
TND Guest Contributor: Dave Kranzler
When a thoroughly corrupt Government wants to try and hide something from the public, they exert an all-out effort to mis-direct and cover-up. The financial markets are no different. It’s been obvious to anyone with one good eye and one brain cell that the puppet-masters behind the Wall Street/DC “curtain” have been propping up the Dow/S&P 500 and exerting forcefull downward pressure on the price of gold and silver. Why gold and silver? Because gold and silver, for 5,000 years, have been the world’s “alarm system” alerting everyone when something is terribly wrong
Full story: http://thenewsdoctors.com/?p=478985
theres not going to be hyperinflation, inflation. or deflation, starting in2008, and from here on allhere's going to be is middle-class asset disinagration.
politicians, and the fed are legally redistributing those trillions of boomers assets, they always wanted to get thier hands on, between obama-care , and qe's, millilials are not going to get nothing but a scrapbook of what was once truely thiers.
USA Snack food analysis july 2015 estimates a single mouthful of snacks will cost you $1 USD.
Currently trading at one dollar per mouthful of food.
Inflation in the cost of living? In the 50s and 60s I had an uncle who supported a stay-at-home wife and raised 2 boys in decent neighborhood 50 miles north of NYC. He was a cabdriver in that town. What does it take to do that now?
maybe the politiburo chiefs in america will buy stocks for us, (using taxpayer money) like the chinese. i am really curious how much higher does the stock market have to go to achieve 2% inflation?
To what extent do they do it already, directly or indirectly?
As long as they can sell paper gold and silver the foundational illusion is intact! Let's see how much longer they can deliver.
Excellent Essay ... and clearly explaining how there is a wealth transfer (theft, engineered by the banks) from the middle class to the banking classes.
At the same time to accelerate the process of stealing wealth away from the middle class there has been high inflation in certain segments such as health care, food, education, insurance, banking fees and taxes.
Clearly the banking class does not believe the US or any country needs a strong middle class... just poor debt-slaves and a puppet government.
i recently took over a trust and its a very sobering thing. the impulse is to sell assets, but that creates the same problem, how do you derive income from the proceeds of the sale. then you begin to think how can i generate income (a lot of people are renting their larger homes and moving into a smaller apartment, the trade is getting crowded as they say) anytime you think you have a clear view of the problem, remember there are another 300 million out there going through the same experience. the idea that you can capture some investment idea that no one else beleives in is self delusion. anything worth investing in is already overbought. true enough you might get lucky, like penny stocks if just one in a hundred pans out, so walls street bundles those into etfs. you could move to costa rica, but you are likely to find that is getting expensive too. the only think you can do is cut expenses. fire everyone. maid, gardener, handyman. do stuff yourself if you are able. join the inside track at harbor freight. you can learn to do just about anything watching youtube videos. the problem for you is it all becomes incredibly time consuming, especially if you have a job already. farming is not necessarily going to save anyone. the export market keeps all sort of vegetables on the shelf all year around, if it gets too expensive you may not be able to afford mangoes in NY, but you can't grow them either. its very likely we have to work harder and we have less than our parents generation.
QE and ZIRP were simply methods for banks to rebuild shattered balance sheets. The TBTF banks were bankrupt. Holding worthless real estate. They were backstopped, allowed to create their own artificial accounting standards, QE and ZIRP were implemented, and paying savers real interest was destroyed.
Hank Paulson and this crooked government bailed out banks in 2008. In 2010, they bailed out health insurers with Obamacare in extremis.
Representative government? Not for citizens like me. I exist so that they can stick a big dick in my ass and tell me they are checking my prostate.
correct me if i'm wrong, but isn't the devaluation of YPP just a fancy way of saying the rate of inflation is compounded over time?
Edit: Not trying to knock the article-it's very good. Just trying to confirm something a finance professor told us back in the 80's. He didn't use the term YPP but just showed the effect of compounding the rate of inflation over time and the impact it has on purchasing power (or lack thereof) over time.
excellent essay.. and very accurate which makes it highly depressing!!!... I bet we can all see examples of this in our personal and professional lives ... can we do somthing to counteract it... my belief is in the physical gold... nothing else can be trusted
www.teamramgold.com for most competitive small weight gold bullion on the net
Dear Mr. ram_it_2206,
It was very nice of you to come here for the purpose of sharing your website with us over and over and over and over and over again.
Folks like you make ZH worth reading.
Keith is right to focus on the yield on a 'riskless' investment. For example he says that from 1979 to 2014 -in 35 years- the Yield Purchasing Power of a 3-month CD fell more than 1,000-fold. So the capital that would have sent a child to college college if invested in 1980 is not expected to do that for a child born now.
So even if prices are not (hyper)inflating in 2014, Money is becoming less valuable every time interest rates go lower.
And -- interest rates can always go to half of what they are now!
Talking about inflation and the farm...yesterday I needed to buy some baler twine down at the co-op. The price was $75 per bag...up from $32 last year. Bastards.
A 4% yield on short term treasuries would bankrupt the U.S. and collapse the dollar. Bring it on!
We'll need a lot more paper than that because
https://www.reverbnation.com/therefusers/song/21458443-the-golds-all-gone
I'm currenty close to an interesting deal. A relatively young fella, who accumulated some jingle, and wants, more than anything, to be super rich.
He wants it so bad.
So the vehicle is real estate. Specifically, an apartment complex. So I have been observing the process, as it plays out. It's differant in 2015, that's for sure. The deal is in the $9-12 million range. ( three buildings, one at a time, or all at once).
From my perspective, this fella could not carry out an informed discussion with the average ZH poster. He does not care. Tunnel vision. Red or black. For the win.
I think it's crazy. Time will tell. I'm hanging around to do some building. That's what I do.
I see this in some others, too. Not really to overtly bright, but getting loans and buying houses for rentals.
I read something interesting the other day. To paraphrase, the best way to ruin a man is to take away his hope for the future. If you think the future is fucked, well, how and why to you put in effort to secure that which will pay off in the future? And to me, if you spend time trying to understand the world around us, and you have a logical brain and a few functioning brain cells, how do you conclude we are not heading for a shitstorm?
So for me, it's hang off to the side, stay loose, and swoop in and grab some crumbs.
A victory today is a roof and food in the house. Kinda sucks. Merican Dream?
".....if you are trying to understand the world around us, and you have a logical brain and a few functioning brain cells, how do you conclude we are not heading for a shitstorm?"
Yep...and I thought I was the only one balancing that Catch 22. Balancing hope for the future with reality.
Two thumbs up for the article. Very interesting way to think about our current situation.
It's amazing how Austrian economics clarifies thinking while the neo-keynesian nonsense is a vast fogbank; and behind the fog, brute racketeering.
Everone laughed at me in 2004 when I took my life savings and bought golden & Silver age comic books.
Who's laughing now bitchez?!?!?!?!?
Comic books are just more paper. Mothes love it. Easy to chew. Like the dollar.
Humans are mostly just water.
Summary: Z/N IRP = death sentence of the middle class
The inflation is showing up in essentials like food prices. Items that can't be avoided. All other non-essential items have little demand because people are too scared to spend and are in survival mode of maximizing savings. The herd senses impending doom.
This creates deflation and soon merchants will be lowering prices for non-essentials to try to lure some of that hoarded money out from under the mattress.
Even gas is no longer an essential as 93M unemployed can and are avoiding needless travel. Housing rentals are an essential and are too high for most young people who live at home.
Inflation should be measured as strictly essential non-avoidance items and then you would get an accurate measurement - not some misleading and useless basket of no-demand items like the United States of Deception is currently using.
One very rare place where inflation is perfectly reflecting those responsible for its creation is in healthcare. I just LOVE the fact that the act is called the "Affordable Care Act", that it is known as Obamacare, and that it is very well known to be the creation of FIRE sector lobbyists. THAT's inflation people are not ignoring, and everyone knows exactly why it's happening. Rarely, the ability of TPTB to mask the bullshit slips. It has slipped here, and everyone (literally 100%) of people I have talked to is ripping pissed off about it.
along the same thinking, asset prices are showing inflation. The middle class is scared shitless about their good job, or if they have a crappy job they cannot make it without EBT. At some point the boomers are going to start selling their paper assets, what does that do to the price of real goods? Who has money to buy the assets? The FED and their minons??? perplexed.
People who were told an dthought they could retire with $250k in their pensions with a yield of 4-8% are getting squashed right now and as the article says, they are eating away at their capital to survive. Seniors as well as the Middle Class are getting crushed...slow painful and intentional by the Fed's policies to fatten bankers.
Krugman is still a shmuck........
Interesting read, but I wish they took it further....
After literally years of reading and studying this stuff, to try to gain a better understanding, this is the first time the concept has been presented in such a way.
Very good.
I agree. I really love genuinely new perspectives.
At least this isn't Zimbabwe....
Wait, what's that?
This IS Zimbabwe?!
NOooooooooooo!!!
Excuse me. Why should anyone expect to make a good living in freakin' 3-month T-bills? That makes no sense whatsoever. What happened in the late 1970s was a historical anomoly. As it stands, with how poor the economy has been, even zero interest rates are awfully generous.
In a poor economy it is harder to make money with which to repay the loan. Thus rates should be higher because the risk is greater. Without the Fed setting artificial rates, the market would demand a substantial return on capital risked in a poor earnings environment.
The definition of 'value' has been completely corrupted by the FED. When a piece of paper we call a stock is worth more than what the company it represents the value of the stock should go down. Nowadays the true value of the company is meaningless while those paper versions of magic beans goes up, but it can't go on because it's becoming obvious that the emperor is naked as a jaybird.......
I would like Mr Spock to mind meld with you so he can find out why you think charging interest for loans is an anomoly, and why you think interest rates normally go down when money is scarce in a bad economy. It appears you may be from an evil parallel universe, or possibly trying to suck my salt.
He's not a life form as we know it.
He's dead, Jim!
Secret to make money on US government treasury bill is print you are own. Boris' cousin Ivan can print Euro, T-Bill, "Yes You Can" bumber sticker. You name it, he is print. Control-P b*tchez!
Brain dead, anyway