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How Hyperinflation Happens - different animal than inflation


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#41 romans holiday

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Posted 30 August 2010 - 02:05 PM

QUOTE (aliveandkicking @ Aug 30 2010, 10:28 PM) <{POST_SNAPBACK}>
In a credit contraction the currency becomes more valueable because it is more sought after and harder to obtain.

Yes [relative to assets and marginal currencies].

QUOTE
That does not mean the government is powerless to ensure it is available as before. Nor does it mean it can not be harder to obtain if that is found to be necessary later on.

And governments like china will be happy that America continues to import chinese products more or less in the same quantity as before this crisis began.

No, the government is powerless due to a liquidity trap. Monetary policy is no longer effective when banks/ people do not want to carry on lending/ borrowing and instead look to recapitalize/ save/ pay down debt. A grinding debt deflation unless governments decide to drink some of that Shazzam stuff... but I think you think governments are too sensible for that. The other more sensible option is to re-boot the currency system. Bye bye market fundamentalsim.

As for going back to the way it was where Chinese produced and Americans consumed, this is the fantasy. Trade has to be balanced, otherwise the wheels fall of sooner or later. The question is how can the global economy be put back on a balanced footing.
Modern money "shorts" the currency, and is backed by debt. The debt is real. A debt deflation will lead to a prolonged period of deleveraging, where the short-covering of currencies will strengthen currencies relative to asset prices. At the global level, in the FX market, central currencies will benefit from deleveraging at the expense of peripheral currencies. Due to instability and uncertainty, gold will benefit against all currencies as it continues to be re-monetized.

Hold on to your hats for hyper-deflation, where cash is king, and gold the King of cash.
[Silver? A Volatile Queen].

#42 aliveandkicking

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Posted 30 August 2010 - 04:08 PM

QUOTE (romans holiday @ Aug 31 2010, 02:05 AM) <{POST_SNAPBACK}>
Yes [relative to assets and marginal currencies].


No, the government is powerless due to a liquidity trap. Monetary policy is no longer effective when banks/ people do not want to carry on lending/ borrowing and instead look to recapitalize/ save/ pay down debt. A grinding debt deflation unless governments decide to drink some of that Shazzam stuff... but I think you think governments are too sensible for that. The other more sensible option is to re-boot the currency system. Bye bye market fundamentalsim.

As for going back to the way it was where Chinese produced and Americans consumed, this is the fantasy. Trade has to be balanced, otherwise the wheels fall of sooner or later. The question is how can the global economy be put back on a balanced footing.


obviously the government can spend money into existance so is far from powerless to avoid deflation. In Japan for example it appears they felt they were always doing sufficient to turn around the situation and never did quite sufficient to actually achieve that. Japan appears to have lent all that money into existance. Did it really actually have to do that??

All that is required is a regular devaluation so that people know that there is no great advantage in delaying spending for those that want to spend.

The argument for an ongoing grinding deflation seems to require an act of government stupidity in my view.

So it is not the case they need to be particularly intelligent to avoid it.

Nothing magical gets created so nothing magical needs to be provided. It is just the difference between inflationary depression and deflationary depression as worse case outcomes


#43 romans holiday

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Posted 31 August 2010 - 06:53 AM

QUOTE (aliveandkicking @ Aug 31 2010, 01:08 AM) <{POST_SNAPBACK}>
obviously the government can spend money into existance so is far from powerless to avoid deflation. In Japan for example it appears they felt they were always doing sufficient to turn around the situation and never did quite sufficient to actually achieve that. Japan appears to have lent all that money into existance. Did it really actually have to do that??

Can they though? This would seem to be the solution, yet politically this is becoming less feasible. There is just too many angry [and organized] people in the US to allow the government to get away with more stimulus. The Fed can always QE and lend, but I think we both agree this doesn't achieve much.

QUOTE
All that is required is a regular devaluation so that people know that there is no great advantage in delaying spending for those that want to spend.


Easier said than done... with the current policies they have at their disposal. A radical structural solution may be found if the squeeze is painful enough. This may involve a revamping of the current international monetary system.

QUOTE
The argument for an ongoing grinding deflation seems to require an act of government stupidity in my view.


A gradual ongoing deflation might be the best possible outcome for the US. Continued QE, and perhaps another stimulus [if they could get one through], wouldn't reverse the economy, but would instead only serve to stave of a complete rout in the market and economic collapse.
Modern money "shorts" the currency, and is backed by debt. The debt is real. A debt deflation will lead to a prolonged period of deleveraging, where the short-covering of currencies will strengthen currencies relative to asset prices. At the global level, in the FX market, central currencies will benefit from deleveraging at the expense of peripheral currencies. Due to instability and uncertainty, gold will benefit against all currencies as it continues to be re-monetized.

Hold on to your hats for hyper-deflation, where cash is king, and gold the King of cash.
[Silver? A Volatile Queen].

#44 aliveandkicking

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Posted 31 August 2010 - 07:35 AM

QUOTE (romans holiday @ Aug 31 2010, 06:53 PM) <{POST_SNAPBACK}>
Can they though? This would seem to be the solution, yet politically this is becoming less feasible. There is just too many angry [and organized] people in the US to allow the government to get away with more stimulus. The Fed can always QE and lend, but I think we both agree this doesn't achieve much.



Easier said than done... with the current policies they have at their disposal. A radical structural solution may be found if the squeeze is painful enough. This may involve a revamping of the current international monetary system.



A gradual ongoing deflation might be the best possible outcome for the US. Continued QE, and perhaps another stimulus [if they could get one through], wouldn't reverse the economy, but would instead only serve to stave of a complete rout in the market and economic collapse.


I agree that people can always mess things up, we would not be in this situation without many mistakes.

But US QE has obviously been very successful. 30 year mortgages are the lowest since the 1950's and credit is available for those qualifying for it. Consumers are still very active as shown by imports and retail sales being almost at levels before this crisis began. Dispite the fears at the time many borrowers resetting from teaser rates have not found they are crushed by interest payments. The various feds have shown that they have much more power than people like me anticipated back in 2007 when i assumed rates would spike higher.

Meanwhile, some prices are falling and some are rising. Officially at least there is inflation where official inflation understates actual inflation usually. And they can do plenty more QE if necessary.

Places like the Nordics and Germany are doing ok now as far as i can see. Finland and Germany will very likely have to control bank lending or risk higher inflation as the ECB looks elsewhere. House price rises in Finland with such low mortgage rates of 2% are a bit rediculous in the circumstances and need leadership from somebody.

In NZ I see South Canterbury Finance has failed. That might help the economy there because those government guaranteed depositors are now able to spend and maybe a chunk of them will spend rather than be in that situation again of worrying about losing everything. So it could amount to just more stimulus from NZ.

Americans got too one eyed - sooner or later all of that production moving overseas was going to come back and bite them, but for sure they are not poor - they just needed to better regulate their economy. And one difficulty they had there was the mafia like nature of unionisation and equal mafia like forces at work in the financial area. But different mafias feuding.

#45 DrBubb

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Posted 03 September 2010 - 03:14 PM

I just had a nice 2 Hour+ chat with Gonzalo Lira in Santiago.

We are planning to do a podcast for GER next week.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#46 lowrentyieldmakessense(honest!)

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Posted 03 September 2010 - 06:36 PM

QUOTE (DrBubb @ Sep 3 2010, 04:14 PM) <{POST_SNAPBACK}>
I just had a nice 2 Hour+ chat with Gonzalo Lira in Santiago.

We are planning to do a podcast for GER next week.

sounds good


does anyone know Krassimir Petrov


also what about trying to get Catherine Austin Fitts
QUOTE
"You have to choose, as a voter, between trusting to the national stability of gold and the natural stability and intelligence of governments. I advise you, as long as the capitalist system lasts, to vote for gold."

George Bernard Shaw


QUOTE
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.

Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s

#47 DrBubb

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Posted 03 September 2010 - 08:31 PM

QUOTE (lowrentyieldmakessense(honest @ Sep 4 2010, 02:36 AM) <{POST_SNAPBACK}>
sounds good
does anyone know Krassimir Petrov
also what about trying to get Catherine Austin Fitts

Good ideas.
Give us time
== ==

In researching for a conversation with Gonzalo, I had a listen to these two conversations with Steve Keen:

1/ Predictions For 2010: Steve Keen
Posted by commoditywatch on December 13th, 2009


2/ On the Edge with . . . Steve Keen (2/2)

The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix




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