Follow The Bottom Violation
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Mar
2
Excessive Currency Printing is Not the Only Catalyst for Hyperinflation
Many of my detractors insist that hyper-inflationary price increases are impossible in the current global economic environment because asset-classes are falling in value, and therefore price pressure is deflationary. Further, these critics claim that the only way to get to a hyper-inflationary scenario is for currency to get into the economy through the fractional reserve banking system. They contend that, since the velocity of money is extremely low, no currency is getting into the economy through banks, and therefore we cannot have hyperinflation.
Balderdash.1
1. So help me out here. Fractional reserve banking and the existence of central banks haven’t been around for very long — relatively speaking. And yet empires have been collapsing from the results of hyperinflation for eons. How does that work?
2. Just because large asset classes are falling doesn’t mean all asset classes are falling. Have you seen the price of energy lately? How about gold? Have you been to the grocery store?
3. And what is the best indicator of coming inflation? That’s right: gold. In the late 1990s, when the Dow first crossed 10,000, gold was at about $250 per ounce. Today, the Dow hovers around 10,000, and gold is almost $1200 an ounce. I know I’ve pointed this out several times before, but some people just aren’t getting it. Do you think the correlation is merely spurious? Or do you think there just might be a meaningful relationship hidden in there somewhere?
4. Currencies fail most frequently because governments can no longer raise funds by issuing debt. Yes, eventually the government will print excessively in order to compensate for its evaporating credit from external sources, and yes, the government will do everything in its power to bamboozle2 its citizenry for as long as possible by claiming there is no danger at all. Does this sound familiar? It should.
5. Do you really think “it’s different this time?” Really? Despite Rome, the Soviet Union, Argentina, Great Britain, Mexico, Weimar, blah blah blah… Really? You think a government can leverage itself to this extent, print currency, ease credit, and continue to borrow money from those “stupid Chinese?”
I have news for you: the Chinese aren’t stupid. They’re smart. And they’re winning.
1. The author positively loathes the word “balderdash” and won’t be using it again soon.
2.. The author absolutely despises the word “bamboozle” and won’t be using it again soon either.
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Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
4 Comments so far
Partners
Another awesome analysis!
.-= Living off dividends &passive income´s last blog ..How To Avoid Foreclose: Humor =-.
A) Since the Nixon cut the final, frayed thread in 1971 connecting the USD to gold, the USD price of gold has risen by an average of about 10% per year. For those who do not have a calculator handy, that nearly 40 years. Over the past decade, the rate has accelerated to about 15% per year.
B) The value of a currency can fall, even if the quantity were fixed, if demand for that currency falls. In the case of the USD, the supply is increasing, which drives down its value; if this is accompanied by a decline in demand, as central bank governors opt for alternative stores of value, like gold or SDRs, the value will fall even more. If it falls enough, it could hit a tipping point into a collapse in its value altogether.
Given that the future is unknowable, we cannot be certain that this *will* happen, but if enough individuals expect that it will, by definition it will.
On the other hand, those who forget the past are doomed to repeat it.
Ludwig von Mises addressed this sort of thing nearly a century ago, and his words could have been written about the USD economy today: http://finance.chyden.net/?p=1360
[...] Cause of Hyperinflation: In his weekly letter, John Mauldin conclud… http://bit.ly/daODBi http://www.bottomviolation.com/excessive-currency-printing-is-not-the-only-catalyst-for-hyperinflati... The fed is not wildly printing money as yet no hyperinflation we8217re not becoming zimbabwe [...]
Nature is always there or you. prices of Industrially produced food are always linked to the ENERGY needed to produce it. If it gets expensive, then so has the energy. Answer? switch to low energy food, Nettle, dandelion and many others.
If you really want to get out of this as a local community, state or nation, i would get yourselves up to washington and get your government to repeal the prohibition of hemp, and get growing it – EVERYWHERE