UBS Issues Hyperinflation Warning For US And UK, Calls It Purely "A Fiscal Phenomenon"

Tyler Durden's picture




 

Supposedly warnings about the latent inflationary threat posed by simply ridiculous non-financial debt levels (as presented most recently here yesterday), not to mention financial debt (which as MF Global's rehypothecated implosion demonstrated so vividly can be any number between minus and plus infinity, thank you London "regulators") from the blogosphere can be ignored ($15 trillion melting ice cube that is shadow banking which also doubles as the best inflationary buffer known to man, notwithstanding). After all, what does the blogosphere know: remember, Libor has been repeatedly proven to not be manipulated, as the mainstream media so strenly claimed year after year after year until it had no choice but to do a 180 and pretend its advertiser paid for lies in the past 3 years never existed. But when these same warnings emanate from the "very serious people" at UBS, economists with a Ph.D. at that, it may be a little more difficult to dismiss them. So here it is: "Hyperinflation Revisited" from Caesar Lack, PhD, economist.

From UBS, highlights ours.

Global Risk Watch: Hyperinflation Revisited

Hyperinflation: Paper money only has a value because of the confidence that the money can be exchanged for a certain quantity of goods or services in the future. If this confidence is eroded, hyperinflation becomes a threat. If holders of cash start to question the future purchasing power of the currency and switch into real assets, asset prices start to rise and the purchasing power of money starts to fall. Other cash holders may realize the falling purchasing power of their money and join the exit from paper into real assets. When this self-reinforcing cycle turns into a panic, we have hyperinflation. The classic examples of hyperinflation are Germany in the 1920s, Hungary after the Second World War, and Zimbabwe, where hyperinflation ended in 2009. Indeed, hyperinflation is not that rare at all. Economist Peter Bernholz has identified no fewer than 28 cases of hyperinflation in the 20th century.

Our monthly global inflation barometer tracks the risks to our global inflation outlook as part of our “Global risk watch” series. Apart from deflation and high inflation, we identify hyperinflation as a third risk to our view of moderate global inflation rates. We currently see it as very unlikely that any of these three risk scenarios will materialize over the next 12 months, i.e. we estimate their probability at below 10%. However, given the devastating effects hyperinflation would have, we want to explore the risk of hyperinflation in more detail.

Hyperinflation has little to do with "normal" price inflation. In particular, hyperinflation is not an escalation of "normal" inflation. "Normal" inflation denotes a steady and continuous decline in the purchasing power of money, which is ultimately attributable to an increase in the money supply.

Hyperinflation, on the other hand, is a collapse of confidence in money, which results in an accelerating flight out of money into real assets and goods, and thus an accelerating loss of the purchasing power of money.

Hyperinflation is a fiscal phenomenon

Ultimately, hyperinflation is a fiscal phenomenon; that is, hyperinflation results from unsustainable fiscal deficits. Peter Bernholz notes that historically, cases of hyperinflation have been preceded by the central bank monetizing a significant proportion of the government deficit.  After investigating 29 hyperinflationary episodes, 28 of which happened in the 20th century, Bernholz writes: "We draw the conclusion that the creation of money to finance a public budget deficit has been the reason for hyperinflation."

When government deficits become unsustainable, austerity is often the first reaction. Austerity is deflationary, recessionary, and painful. If the austerity necessary to balance the budget is deemed to be too painful, a government can either choose to default or to inflate the currency.

If the country concerned has its own currency, it will usually choose to inflate it. If government finances do not improve sufficiently, confidence in the currency may evaporate at some point and hyperinflation may arise. Hyperinflation is more closely related to deflation than to "normal" high inflation, as hyperinflation can be viewed as the result of a failed attempt at printing money to avoid the deflation that would be caused by austerity.

In our view, there is some risk that hyperinflation could arise in one or more large currencies. As a consequence of the burst credit bubble, we are seeing unsustainable government deficits in many large countries. Deleveraging and austerity are deflationary and recessionary. Central banks around the world are fighting these deflationary and recessionary tendencies by massively easing monetary policy. Having exhausted the interest rate instrument, global central banks are increasingly turning to the alternative measures of quantitative and qualitative easing (see Box). While direct government debt monetization by central banks is still the exception, the elaborate toolbox of central banks allows for indirect debt monetization, for example, by accepting government bonds as collateral in temporary but repeated operations. In the two following sections, we illustrate the current unsustainable developments in global fiscal and monetary policy.
Government debt rising at an unsustainable speed In the wake of the financial crisis of 2008, government deficits increased massively around the world. However, despite widespread commitments to austerity, government deficits are still at unsustainable levels (see Fig. 1).

According to International Monetary Fund (IMF) estimates, the combined government net borrowing of the world's 10 largest deficit countries will amount to USD 2.657 trn (or 5.9% of GDP on average) in 2012, half of which is due to the US alone. The 2012 deficits are only slightly lower than the deficits in the three previous post-crisis years. Before the financial crisis (1990–2007), average net borrowing of the Top 10 deficit countries amounted to 3.7% of GDP; from 2009–2012, net borrowing climbed to 7.4% on average. Average annual nominal GDP growth since 1990 has amounted to 5% in these countries. In order to be sustainable, i.e. in order for a country's government debt/GDP ratio to decline, its deficit must fall below the nominal growth rate of GDP. Given the current low growth and inflation environment, the deficits would actually have to fall significantly below the 5% mark in order to stabilize the debt/GDP ratio. Note that the 2012 IMF forecast of a net borrowing of 5.9% for the 10 high-deficit countries could well turn out to be too optimistic, as the recent negative economic news has worsened the fiscal outlook.

Global monetary policy expansion accelerated

Fig. 2 illustrates the accelerating expansion of monetary policy after the financial crisis of 2008. In the years leading up to the collapse of Lehman (2002–2008), the global monetary base grew at an average annual rate of 10.5% (in local currencies, weighted by GDP). Since the Lehman collapse, the average annual growth of the global monetary base has more than doubled to 21.6%. Currently, the global monetary base amounts to USD 14.1 trn and is up 20.4% on the previous year.

Fig. 3 shows the global monetary policy expansion and the combined net borrowing of the Top 10 deficit countries. In fact, in 2011, the global central bank balance sheet and the global monetary base expansion were about equal to the deficit countries' combined net borrowing. Although central banks do not directly monetize government deficits (with some exceptions), one can argue that central banks are at least accommodating the current excessive governments deficits.

Neither the government deficits of many large countries nor the speed of the current global monetary policy expansion are sustainable. If government finances do not improve and the global monetary policy expansion is not halted in time, hyperinflation could set in. However, it is not clear how much fiscal and monetary policy can expand before a loss of confidence in paper money sets in.

Countries at risk

Bernholz notes that preceding a case of hyperinflation, government deficits usually amount to more than 20% of government expenditures, and that deficits amounting to 40% or more of government expenditures clearly cannot be maintained.

Of the Top 10 deficit countries, India, the US, Japan, Spain and the UK all exhibit government net borrowing above 20% of government  expenditures (Table 1). However, Spain does not have its own currency and therefore cannot trigger hyperinflation on its own. The government net borrowing of the Eurozone as a whole amounts to only 11% of total government expenditures.

The euro is therefore not a prime candidate for hyperinflation, as long as the core countries do not leave the currency union. Although India is one of the Top 10 deficit countries, an outbreak of hyperinflation there would be of relatively minor concern to the global investor. Unlike the US and the UK, Japan is a creditor nation and not a debtor nation. In fact, Japan has the world's largest net international investment position (see Fig. 4), while the US is the world's largest net debtor. We think that a creditor nation is less at risk of hyperinflation than a debtor nation, as a debtor nation relies not only on the confidence of domestic creditors, but also of foreign creditors. We therefore think that the hyperinflation risk to global investors is largest in the US and the UK.

Indicators to watch

The more the fiscal situation deteriorates and the more central banks debase their currencies, the higher the risk of a loss of confidence in the future purchasing power of money. Indicators to watch in order to determine the risk of hyperinflation therefore pertain to the fiscal situation and monetary policy stance in high-deficit countries. Note that current government deficits and the current size of central bank balance sheets are not sufficient to indicate the sustainability of the fiscal or monetary policy stance and thus, the risk of hyperinflation. The fiscal situation can worsen without affecting the current fiscal deficit, for example when governments assume contingent liabilities of the banking system or when the economic outlook worsens unexpectedly. Similarly, the monetary policy stance can expand without affecting the size of the central bank balance sheet. This happens for example when central banks lower collateral requirements or monetary policy rates, in particular the interest rate paid on reserves deposited with the central bank. A significant deterioration of the fiscal situation or a significant expansion of the monetary policy stance in the large-deficit countries could lead us to increase the probability we assign to the risk of hyperinflation.

Gold – the canary in the coalmine

Due to its long standing as the foremost, non-inflatable, liquid alternative currency, gold is the first destination for wealth fleeing from paper  money into real assets. Gold can be considered a hyperinflation hedge, and its price can be considered an indicator for the probability of hyperinflation. A sudden rise in the price of gold would be a warning sign that the risk of hyperinflation is increasing, in particular if it went along with a worsening of the fiscal situation in the deficit countries and an easing of monetary policy. Not only gold, but also other commodities, as well as the stock market, would profit from investors fleeing from money and from government debt. Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation. We will continue to monitor global inflation developments and change our risk assessment in the global inflation monitor according to current events.

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Wed, 07/18/2012 - 14:25 | 2629249 sdmjake
sdmjake's picture

"In a social democracy with a fiat currency all roads lead to inflation"   - Bill Fleckenstein

Wed, 07/18/2012 - 14:26 | 2629258 sunaJ
sunaJ's picture

So easy, a caveman can understand it.  Thanks, UBS, for your "expertise."

Wed, 07/18/2012 - 14:36 | 2629304 SheepRevolution
SheepRevolution's picture

<------ 5000 USD for 1 oz of Silver!

<------ 50 USD for 1 oz of Silver!

Wed, 07/18/2012 - 14:50 | 2629393 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

King Dollar!

Wed, 07/18/2012 - 14:59 | 2629443 The Monkey
The Monkey's picture

Hyperinflation with a 2% inflation target... They better hurry up and get some more headroom on that target.

Wed, 07/18/2012 - 15:01 | 2629452 Pladizow
Pladizow's picture

"Mo Money, Mo Problems" - Sean Puff Diddy Daddy Puffy Combs.

Insightful without a Clue!

Wed, 07/18/2012 - 15:09 | 2629482 JPM Hater001
JPM Hater001's picture

Looks like I picked the wrong week to go to the Bohemian Grove.

Wed, 07/18/2012 - 15:25 | 2629544 Race Car Driver
Race Car Driver's picture

I'd love to join ya, but I gotta galt.

Wed, 07/18/2012 - 16:08 | 2629721 FreeSlave
FreeSlave's picture

sorry for this post, but just wanted to spread the news:

Handcuffed man shot twice by San Francisco police - witness reports

http://rt.com/usa/news/man-shot-police-witness-517/ 

https://www.youtube.com/watch?v=Xx24DAkryNQ&feature=youtu.be

https://www.youtube.com/watch?v=5v0zYmE46V8&feature=plcp

Wed, 07/18/2012 - 16:15 | 2629742 Temporalist
Temporalist's picture

This is my snippet of the report that I think cuts to the point:

"Bernholz writes: "We draw the conclusion that the creation of money to finance a public budget deficit has been the reason for hyperinflation."

When government deficits become unsustainable, austerity is often the first reaction. Austerity is deflationary, recessionary, and painful. If the austerity necessary to balance the budget is deemed to be too painful, a government can either choose to default or to inflate the currency.

If the country concerned has its own currency, it will usually choose to inflate it. If government finances do not improve sufficiently, confidence in the currency may evaporate at some point and hyperinflation may arise. Hyperinflation is more closely related to deflation than to "normal" high inflation, as hyperinflation can be viewed as the result of a failed attempt at printing money to avoid the deflation that would be caused by austerity."

Wed, 07/18/2012 - 18:14 | 2629752 Pinto Currency
Pinto Currency's picture

 

So the central banks blow a debt bubble over two decades that has reached total debt (Federal, state, municipal, corporate, consumer, etc) approaching 400% of GDP for each of Europe, the US and Japan. 

Now UBS points out that the problem is purely a fiscal problem.  It is not.  The collapsing debt bubble would still exist if all of the governments drastically cut their spending.

We still face collapse and hyperinflation because of the collapsing debt bubble no matter what government does with its spending.  The Keynesian approach of <control> <p> hides the symptoms and allows blame switching by the guilty parties (central banks and the bullion bank gold price riggers - is UBS a bullion bank?).

Wed, 07/18/2012 - 18:17 | 2629995 MrSteve
MrSteve's picture

Your points are valid but they are hedged against your assertions: note, they said " " could signal the approach of hyperinflation. " " The conditional subjunctive, "could" is their escape clause. Reality may not be so finely sliced as they would like it to be.

This is a small point that only points to the corporate CYA mentality of the original author. Everyone at ZH knows the road to hyperI runs through precious metals.

 

 

Wed, 07/18/2012 - 20:07 | 2630197 Pinto Currency
Pinto Currency's picture

 

The quote was:

"Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation. We will continue to monitor global inflation developments and change our risk assessment in the global inflation monitor according to current events."

These words do not indicate that in fact this UBS sudden realization does not reflect anything that UBS have not known about for more than a decade.  It is just now that the public gets to read about it.

Wed, 07/18/2012 - 20:45 | 2630312 engineertheeconomy
engineertheeconomy's picture

If you plot the cost of a box of Corn Flakes or a gallon of gas  on a chart you will see a steep kyperinflationary hyperbolic curve that even your four wheel drive couldn't climb

Wed, 07/18/2012 - 22:22 | 2630557 Joseph Jones
Joseph Jones's picture

About ten years ago an SFFD Lieutenant, of his own volition, not ordered to do it, tackled a guy on a roof threatening suicide.  The guy fell off the roof and died.  I kid you not.  Brings new meaning to the fireman term "risking your life," in this case, "your" is the citizen the fire man is supposed to "serve," not the fireman.   

Wed, 07/18/2012 - 16:13 | 2629737 JPM Hater001
JPM Hater001's picture

Talk about inflation you should see what a 14 year ofl boy is going for this year.

 

I hear we aren't even using a real baby for the sacrifice this year.

Fucking cutbacks.

Wed, 07/18/2012 - 18:21 | 2630006 ThreeWishes
ThreeWishes's picture

Where all F$$k'd

Wed, 07/18/2012 - 16:03 | 2629698 Pool Shark
Pool Shark's picture

 

 

Now we know what UBS stands for:

Utter BullShit

 

Wed, 07/18/2012 - 17:25 | 2629908 kito
kito's picture

next time you cite my work or im coming after you............

Wed, 07/18/2012 - 15:08 | 2629479 I am more equal...
I am more equal than others's picture

You say Hyper I say Hydra-inflation.  Let the 8 headed beast out. Bernake has complete his second of twelve tasks to destroy the earth. 

So it is written, so let it be done.

Wed, 07/18/2012 - 15:41 | 2629590 RockyRacoon
RockyRacoon's picture

Nobody gets anywhere on this argument until all parties are using the same vocabulary and agree on definitions. Even those defining the word can't agree amongst themselves:

Inflation Rate
Inflation refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. Mainstream economist views can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities. Related concepts include: deflation, a general falling level of prices; disinflation, the reduction of the rate of inflation; hyper-inflation, an out-of-control inflationary spiral; stagflation, a combination of inflation and poor economic growth; and reflation, which is an attempt to raise prices to counteract deflationary pressures.
Wed, 07/18/2012 - 16:27 | 2629778 Divine Wind
Divine Wind's picture

Nice post. Thank you for this.

 

Wed, 07/18/2012 - 19:10 | 2630078 Shigure
Shigure's picture

This is what the FEASTA report "Trade-Off -
Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse" said about the definitions of inflation and deflation:

"In discussing this we need to be clear about the definitions of inflation
and deflation. Often, inflation and deflation are defined in terms of rising and falling
prices. These are secondary effects. One can have rising prices in a deflationary
environment. In this study, inflation and deflation are a rise or fall in money + credit
relative to GDP. Debt deflation, even without rising food and energy prices, leads to
reduced discretionary spending as was discussed earlier. Rising food and energy prices,
because they are at the heart of non-discretionary expenditure, lead to further squeezes on
discretionary spending, credit issuance, and the ability to service debt."

http://www.zerohedge.com/news/trade-study-global-systemic-collapse

Wed, 07/18/2012 - 15:32 | 2629567 Muppet of the U...
Muppet of the Universe's picture

Full disclosure:  long dollar at time of writing

Wed, 07/18/2012 - 17:05 | 2629875 Spitzer
Spitzer's picture

The government net borrowing of the Eurozone as a whole amounts to only 11% of total government expenditures.

King EURO MOFO's

Thu, 07/19/2012 - 02:51 | 2630904 Ghordius
Ghordius's picture

Spitzer, 11% net borrowing vs total government expenditures is still an horrific number. It's roughly the equivalent of 25% if you have the global reserve currency status/privilege. Having said that, I agree with the article, a 10% hyperinflation chance for the USD is a good estimate.

Gonzalo Lira made the point a few years ago that the pre-Volker inflation was actually an incipient (albeit stopped) hyperinflation - an interesting theory.

Money/Currency is a social phenomenon, too. Trust is the real currency of banks and governments.

Wed, 07/18/2012 - 14:51 | 2629404 Yohimbo
Yohimbo's picture

<------ 5000 USD for 1 loaf of bread!

<------ Inflation adjusted $5000 / per hour labor wages!

Wed, 07/18/2012 - 16:22 | 2629760 Mitch Comestein
Mitch Comestein's picture

$5000 for one silver ounce.  Please no.  I would be murdered just trying to sell one ounce.   My neighbors would eat my dog.  I don't want to live in that world.

Wed, 07/18/2012 - 16:33 | 2629793 ATM
ATM's picture

Would your neighbors murder you know for one ounce of silver?

If not what difference does it make? If silver is $5g an ounce that only means the $5g ain't worth shit because one ounce of silver ain't worth shit today.

Wed, 07/18/2012 - 17:57 | 2629954 JamesBond
JamesBond's picture

people are mugged and murdered for far less amounts in their pockets than an ounce of silver

go to harlem, stand on a box and yell you have silver coins in your pocket....

jb

Wed, 07/18/2012 - 20:43 | 2630297 dynomutt
dynomutt's picture

Yeah, the answer to that would be:

 

That's nice, got an iphone?

 

Anyone in Harlem young enough to be a hoodlum thug could give two shits about a silver coin.  I'd also point out that I think that you have an entirely ill-conceived idea of what Harlem is like.

Thu, 07/19/2012 - 09:18 | 2631436 Lord Koos
Lord Koos's picture

+1

Thu, 07/19/2012 - 03:37 | 2630927 SAT 800
SAT 800's picture

The world is not going to respond to what you "want".

Wed, 07/18/2012 - 14:46 | 2629366 CosmicDebris
CosmicDebris's picture

J.H.C.

I remember learning basics like this in High School years ago, and understanding them.  And I am still only a fledgeling when it comes to economics, but this shit is elementary. 

One thing is for sure, when the 'experts' words start to appear on the more 'expert' media outlets...well you probably already know.  Fuckin' nuts.  Just a matter of when now.

Wed, 07/18/2012 - 14:57 | 2629434 Unprepared
Unprepared's picture

"When this self-reinforcing cycle turns into a panic, we have hyperinflation"

 

So Basically, hyperinflation is a a Central Bank run?

Thu, 07/19/2012 - 03:49 | 2630934 SAT 800
SAT 800's picture

No, it's not a central bank run. They tried to explain to you; which is the single most striking and most remarkable fact you will learn from arduous study of financial history, that it is a mass psychology phenomenon. The "product" the masters of the universe have to sell is "full faith and credit"; ie. credibility. When that is gone, it's over. Perhaps 1.5% of the entities than have disposable capital own Silver now as a consciously determined alternative to paper; when this number reaches 5%; you will understand everything. "it will all become clear later".

Wed, 07/18/2012 - 15:02 | 2629457 Silver Bug
Silver Bug's picture

Hold tight your gold and silver. Hyperinflation is guarenteed, because QE to infinity is guarenteed.

 

http://goldisking.blogspot.ca/

Wed, 07/18/2012 - 15:36 | 2629578 Rich Bagg
Rich Bagg's picture

You're in the same boat as Cramer and CNBC bull monkeys.  LMFAO!!!

 

 

Wed, 07/18/2012 - 19:55 | 2630161 Jungle Jim
Jungle Jim's picture

Hold tight for how long? Guaranteed when?

I, and I alone, know where more than a kilo of gold, and almost fifty kilos of silver, are buried deep. I have no job and no other income from any source whatever. I have rent and many bills to pay, including about $5,700 a month, every month, to a nursing home for my father's room and board there alone. (Not counting his pharmacy bills and his doctor's bills.) I have only $16,000 left in FRNs. That will very soon be gone. Then there are only the PMs.

When will their buying power increase? I don't have decades, or years, or months. I have weeks.

Jim

Wed, 07/18/2012 - 20:55 | 2630335 engineertheeconomy
engineertheeconomy's picture

Hold out as long as you can. Around or after the election the Metals will most likely be back up to high tide. Hope you're not overweight in real estate, it's continuing to sink faster than the Titanic 

Wed, 07/18/2012 - 21:55 | 2630486 Jungle Jim
Jungle Jim's picture

I have no real estate of my own. Just my Dad's old house, which I am responsible for, but which is still in his name. It is fully paid for, but has been in unlivable condition since before he went into the nursing home four years ago. Which is why I have not moved back in there to live rent-free these past four years.

I reckon it's worth about $67,000 on the market. I have paid to keep all the utilities turned on in it, and I have paid for all the maintenance and general upkeep, and repairs, and city and county property taxes, and insurance premiums, for four years now. For a place I can't live in. Where nobody could live, except maybe some hobo squatters.

I'd gladly sell the place, IF there was some better place in which to safely store its contents, which are worth more (at least to me) than the building itself.

Jim

Thu, 07/19/2012 - 02:44 | 2630897 cranky-old-geezer
cranky-old-geezer's picture

 

 

Turn your dad's care over to the state.  They'll take the house and other assets and cover his nursing home and medical going forward.

This is not legal advice.  Discuss these things with an attorney, accountant, etc.

 

Wed, 07/18/2012 - 15:13 | 2629494 Carl Spackler
Carl Spackler's picture

"Thus a strong rise of gold, commodities, and stock markets, accompanied by a fall in the currency and in government bond prices (i.e. a rise in yields) could signal the approach of hyperinflation."    - UBS Economist

It appears the UBS Economist didn't think the matter through.  This is a total sheeple quote.

Hyperinflation is not "approaching" when gold, commodities, real property rise while financial assets (currencey and debt) simultaneously fall, it is already there!  The data are retrospective in nature (i.e., showinf things that already happened), so hyperinflation is there, and it is too late to do anything about it... sheeple.

Wed, 07/18/2012 - 16:25 | 2629768 donsluck
donsluck's picture

I am forced to disagree. The majority of price increase for, say, gold, occured while goods prices were only going up slowly. The commodities arena is predictive indeed, sometimes way ahead of the actual hyper-inflation.

Wed, 07/18/2012 - 14:29 | 2629268 Cognitive Dissonance
Cognitive Dissonance's picture

"Paper money only has a value because of the confidence that the money can be exchanged for a certain quantity of goods or services in the future."

Faith and Belief. In the end it's the ONLY (cognitive) currency that really matters.

Wed, 07/18/2012 - 14:34 | 2629295 Buckaroo Banzai
Buckaroo Banzai's picture

Actually, all money-- including precious metals money-- only has value because of the confidence that the money can be exchanged for a certain quantity of goods or services.

It's simply much easier to have confidence in precious metals money, due to the extreme difficulty associated with actually producing it.

Wed, 07/18/2012 - 14:42 | 2629333 Cognitive Dissonance
Cognitive Dissonance's picture

I agree. That's why I did not identify PMs as being the only currency that matters, but rather faith and belief.

Wed, 07/18/2012 - 14:41 | 2629332 MillionDollarBoner_
MillionDollarBoner_'s picture

Faith and Belief.

Hope. Change you can believe in ;o)

Wed, 07/18/2012 - 15:48 | 2629630 roadhazard
roadhazard's picture

Hope & Change ... time for a change...blah blah blah, it must be an election year.

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