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G0ldfinger

HYPERINFLATION

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It aint rocket-science. It's happened before many times and it is happening now. if more assignats are printed to overcome the lack of money, the temporary relief will be looked on as a success and more will be printed. Malinvestment and gambling of all sorts ensues - price inflation grows and at a certain point, confidence in the future purchasing-power of the assignats fails. The race is now on to swap assignats for assets.

 

http://usagold.com/gildedopinion/assignats.html

 

The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter.

 

Various bad signs began to appear. Immediately after each new issue came a marked depreciation; curious it is to note the general reluctance to assign the right reason. The decline in the purchasing power of paper money was in obedience to the simplest laws in economics, but France had now gone beyond her thoughtful statesmen and taken refuge in unwavering optimism, giving any explanation of the new difficulties rather than the right one. A leading member of the Assembly insisted, in an elaborate speech, that the cause of depreciation was simply the want of knowledge and of confidence among the rural population and he suggested means of enlightening them. La Rochefoucauld proposed to issue an address to the people showing the goodness of the currency and the absurdity of preferring coin. The address was unanimously voted. As well might they have attempted to show that a beverage made by mixing a quart of wine and two quarts of water would possess all the exhilarating quality of the original, undiluted liquid.

 

Attention was aroused by another menacing fact;--specie disappeared more and more. The explanations of this fact also displayed wonderful ingenuity in finding false reasons and in evading the true one. A very common explanation was indicated in Prudhomme's newspaper, "Les Revolutions de Paris," of January 17, 1791, which declared that coin "will keep rising until the people shall have hanged a broker." Another popular theory was that the Bourbon family were, in some mysterious way, drawing off all solid money to the chief centers of their intrigues in Germany. Comic and, at the same time, pathetic, were evidences of the wide-spread idea that if only a goodly number of people engaged in trade were hanged, the par value of the assignats would be restored.

 

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It aint rocket-science.

 

no it is not

 

but when a person says 'limited money creation' and then later says he means that money creation will be mind boggling large conversations become a bit silly.

 

And then when others join in without bothering to read the context it just gets even more silly

 

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oil is not going to rise in price in the kind of massive depression you are describing. who will buy it to drive the price higher??

Yeah, let's just ignore 1.3 billion Chinese alone. :lol: A doubling or quadrupling of the Yuan vs. US-Dollar would do wonders to their purchasing power, you know.

 

but when a person says 'limited money creation' and then later says he means that money creation will be mind boggling large conversations become a bit silly.

No, you simply don't have enough imagination. A trillion alone is mind boggling, and we've had that already. So, if I say limited, maybe I am talking 5 to 10 trillion. Truly mind boggling.

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That's actually a HI discussion, so I DOUBLE POST it on here.

 

The entire opposite is true: it was a major success!

 

- The economy still sort of functions, food is on the table!

(Remember, in 2007/08 it looked like the end of the world, and in many ways it was, but now we nicely drag it out.)

 

- UK house prices are at GBP 170,000!

(There can be no doubt that without the money printing the average house price would be in the region of GBP 10,000-50,000 right now.)

 

- Mosty people still have jobs.

(Many more would be jobless had the market be allowed to run its course.)

 

- People still think their pensions are worth something, and the pension providers keep up the fassade too.

(No such thing in the other world that would have been possible.)

 

- Public services still function pretty well.

 

All the above would/should have collapsed in 2007/08. It has not! This is clearly a major success of the money printers! However, it will become evident over the decades that the collapse still happened, but in a slower, different way.

 

Now that the next leg down/collapse approaches, they will 100% do exactly the same thing: print money and spend it. Because the last time it was a great (short term, but who cares [especially as a politician]) success.

 

All that money prevents crucially needed asset prices deflation in hyperinflated areas like house prices. The hyperinflation will therefore continue, but it will shift its focus on necessities.

 

Excellent post

Great perspective.

 

 

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You can't compare gas bills and day to day running costs / household goods costs inflation against the sheer massive value of asset destruction can you.

 

For example, a house at £200,000 devaluing by 50% is a tad more than your gas bill increasing by 100%!! :lol:

 

Actually, sorry, you can compare, but only if you don't hold any assets with high value.

However, the 200k that was in the house was not circulating money. The gas bill, health insurance, etc. are circulating money.

 

The asset deflation has contractionary economic effects, compelling the policymakers to provide monetary and fiscal stimuli, e.g., QE.

 

QE continues to have an inflationary impact on consumer prices.

 

This is compounded by the growth in public debt which undermines confidence in the currency internationally and domestically. Lack of confidence in the currency as a store of value compels people, investors, and corporations to trade currency for other assets, eventually spurring a broader inflation.

 

Japan has already showed the way: asset deflation, consumer price inflation, increasing government debt, decreased confidence in the currency until 1) currency collapse, 2) the currency is backed by something, probably gold, to put a floor under its value and to reestablish monetary stability, 3) horrific austerity (doubtful), 4) something else?

 

In the particular case of Japan they may be able to save themselves - or at least ameliorate the economic downturn - by triggering a substantial population increase, either from domestic or foreign sources.

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Yeah, let's just ignore 1.3 billion Chinese alone. :lol: A doubling or quadrupling of the Yuan vs. US-Dollar would do wonders to their purchasing power, you know.

 

 

No, you simply don't have enough imagination. A trillion alone is mind boggling, and we've had that already. So, if I say limited, maybe I am talking 5 to 10 trillion. Truly mind boggling.

 

You are the moderator so i am limited in what i can say

 

If you define limited money creation as 5 to 10 trillion you can do that

 

But you cannot have an intelligent conversation with other people who might reasonably assume that limited money creation is not a figure that the writer imagines is mind boggling high

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Japan has already showed the way: asset deflation, consumer price inflation, increasing government debt, decreased confidence in the currency until 1) currency collapse, 2) the currency is backed by something, probably gold, to put a floor under its value and to reestablish monetary stability, 3) horrific austerity (doubtful), 4) something else?

 

In the particular case of Japan they may be able to save themselves - or at least ameliorate the economic downturn - by triggering a substantial population increase, either from domestic or foreign sources.

Well I don't think Japan has a chance of increasing population. One quarter of the country basically have one foot in the grave. Many of the younger ones are so traumatised that even marriage is a distant dream. Or not. Many guys have morphed into a new sexless underclass of noodle and veggie sipping, gamer/losers. They reject the old 'salaryman' image because it has lead them to where we now are. And salarys are not to be had besides. Younger women want to marry older men (rich ones) so they can still buy their Vuitton handbags and be pampered. Meanwhile the thought of letting in loads of immigrants is conditioned by 'only if they can speak, write, walk and talk Japanese' (ie F-off). Even the sizeable Brazilian pop is off home in their droves-PAID TO LEAVE. lol!

 

I am of the thinking that Japan has to, gulp, reduce her population by a good half, slim down, accept the new reality and be satisfied to learn new ways to stay alive other than importing oil to export goodies to countries that are giving up the consumer model- because that is going to happen anyway.

 

Adapting to the new global reailities is going to come at the worst time as peak oil slams and crushes this country to pieces. HOWEVER in a post peak oil world Japan will be slimmer and fitter, the old will be goners and what is left will have more space to grow food to feed herself enough without food imports. Other countries will be coming into their old age problem as Japan is moving out of hers, China, Europe, the States. Good luck coping with that in a post peak oil environment.

 

I almost forgot, 'consumer price inflation'?? Surely you mean deflation?

 

GF So the QE worked? Or was merely a temporary anaesthetic now wearing off?

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You are the moderator so i am limited in what i can say

 

If you define limited money creation as 5 to 10 trillion you can do that

 

But you cannot have an intelligent conversation with other people who might reasonably assume that limited money creation is not a figure that the writer imagines is mind boggling high

:rolleyes: Take Felix Zulauf's scenario: he expects monetization of maybe 10-100(!) trillion. Take Zimbabwe, they had 100 trillion notes. So, given that the US alone has already monetized 2 trillion, I see no problem in calling 5-10 trillion "limited". That it still is mind boggling should be out of the question.

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I almost forgot, 'consumer price inflation'?? Surely you mean deflation?

 

GF So the QE worked? Or was merely a temporary anaesthetic now wearing off?

Yes, I guess the experience since the peak in Japan has mostly been CPI deflation. Although, CPI inflation continued for most of the first decade following the peak (at a declining rate), CPI deflation didn't really take hold until the second decade.

 

CPI.jpg

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GF So the QE worked? Or was merely a temporary anaesthetic now wearing off?

BOTH.

 

QE always works short term. It prevents the system from immediately collapsing.

 

However, it is like heroin, it wears off, and then the next shot is needed. If credit is not further and further expanded, the system will contract/collapse. As with heroin, the higher the daily dose, the worse the cold turkey would be.

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Yes, I guess the experience since the peak in Japan has mostly been CPI deflation.

Is that the CPI index or a rate of annual change in CPI (often falsely just called "CPI")? If the latter is true (which it seems, seeing the scale), then I only see very little "CPI-deflation" (negative annual rate of change in CPI) post '98.

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oil is not going to rise in price in the kind of massive depression you are describing. who will buy it to drive the price higher??

 

you say that as if hyper-inflation and a depression cannot happen at the same time.

 

pretty much every hyper-inflation in history has been accompanied by a depression.

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Is that the CPI index or a rate of annual change in CPI (often falsely just called "CPI")? If the latter is true (which it seems, seeing the scale), then I only see very little "CPI-deflation" (negative annual rate of change in CPI) post '98.

Yes, it's the annual change. Japan's consumer prices peaked in 1998, according to this site:

 

http://www.measuringworth.org/graphs/graph...ld=CPI&log=

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Here we go again...

Jim S. might just be right about $1600+ before Jan if this happens:

 

http://www.telegraph.co.uk/finance/currenc...r-tumbling.html

The Fed minutes warned...

...

"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.

 

"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."

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Here we go again...

Jim S. might just be right about $1600+ before Jan if this happens:

 

http://www.telegraph.co.uk/finance/currenc...r-tumbling.html

"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."

 

Jaw-boning manipulation of the market? Whatever the real game plan is, increasing currency instability looks like the only certainty.

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http://jsmineset.com/2010/07/19/explained-...hyperinflation/

Explained Time and Time Again: Currency Induced Cost Push Hyperinflation

...

Dear CIGAs,

 

If gold market participants were all tank drivers their machine would have but one gear – reverse. The smallest book in the world is the book of confirmed gold price visionaries.

 

Someone says deflation and the long gold positions hit the fan. Gold banks make their short covers even though the fuel in Bernanke’s Helicopter Money Drop is founded in the dreaded use of the “D” word.

 

People are so fixed in present time that they cannot picture a euro back towards its high and the dollar back towards its low because the financial condition of the USA dwarfs the problems of Europe.

 

Hyperinflation is always the product of a loss of confidence in currency resulting in a “Currency Produced Cost-Push Hyperinflation.”

 

No one with a synapse talking to another synapse expects a “Demand-Pull Inflation.”

 

All hyperinflation in modern history has occurred for one reason, and one reason only. That is loss of confidence in currency.

 

Loss of confidence in a currency can be brought about by many reasons, but there is one constant factor. When hyperinflation has occurred in modern history EVERY economy involved was decimated as and when it occurred.

 

It has never been caused by “Demand-Pull,” but always and without exception caused by “Currency Induced Cost Push Hyperinflation.”

 

The nonsense being spread by the F-TV taking heads is that the Fed is out of ammunition to fight deflation. That is raving BS. The Fed can and will do QE to infinity which is restricted as a tool by nothing whatsoever. The ECB will not be far behind the Fed.

 

Argue all you want, but this is exactly what is going to happen starting now. Stop being glib. Study hyperinflation in modern times listed below before you ask me to explain it one more time.

 

What is out there today QE wise is enough to result in hyperinflation as confidence falls in currencies due to two characteristics, QE and volatility.

 

Try meditating on the concept of “Currency Induced Cost Push Hyperinflation,” rather than loading your pants over gold banks manipulation full of sound and fury, but meaningless in the great scheme of things.

 

Examples of hyperinflation in modern times:

 

Angola, Argentina, Belarus, Bolivia, Bosnia-Herzegovina, Brazil, Bulgaria, Chile, China, Congo, Free City of Danzig, Georgia, Germany, Greece, Hungary, Israel, Japan, Madagascar, Mozambique, Nicaragua, Peru, Philippines, Poland, Russia, Taiwan, Turkey, Ukraine, United States, Yugoslavia and

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(from another thread here - on Japan):

 

Problem:

How do you get money into people's hands to cause inflation?

 

:rolleyes: I thought we were through that:

 

“Currency Produced Cost-Push Hyperinflation” VS “Demand-Pull (non-hyper) Inflation.”

 

http://www.greenenergyinvestors.com/index....st&p=175992

Excuse me, but I am asking a SERIOUS question, and an important one.

And I have asked it repeatedly, and I have been hoping for better "boiler plate" answers than that!

 

Here are some possible answers, none which do I find very satisfying:

 

+ "Citizens Income" - Money will be "printed" and mailed out as cheques to all citizens

(this simply cheats those who work and pay taxes, and would be unpopular amongst Tea party people etc)

 

+ "Lend it out" - encourage (nationalised?) banks to lend aggressively against various assets (housing?)

(this has been done already in a limited way, and is an important source of our present problems.)

 

+ "Bailout industries" - the government takes over failing companies, and asks them to go on hiring sprees,

with losses covered by QE

 

Have you got any better ideas?

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(from another thread here - on Japan):

 

Problem:

How do you get money into people's hands to cause inflation?

 

 

Excuse me, but I am asking a SERIOUS question, and an important one.

And I have asked it repeatedly, and I have been hoping for better "boiler plate" answers than that!

 

Here are some possible answers, none which I do not find satisfying:

 

+ "Citizens Income" - Money will be "printed" and mailed out as cheques to all citizens

(this simply cheats those who work and pay taxes, and would be unpopular amongst Tea party people etc)

 

+ "Lend it out" - encourage (nationalised?) banks to lend aggressively against various assets (housing?)

(this has been done already in a limited way, and is an important source of our present problems.)

 

+ "Bailout industries" - the government takes over failing companies, and asks them to go on hiring sprees,

with losses covered by QE

 

Have you got any better ideas?

Here's a slight answer:

http://www.zerohedge.com/article/attempt-r...-depositors-fai

Nothing like the US government bailing one out for the stupidity of investing in a ponzi kabal. Earlier today, the FDIC decreed that it would increase deposit insurance for depositors in banks that failed in 2008 in the states of MO, AR, CA, FL, KS and NV. As a result of this action, 9,500 depositors would end up receiving between ten and hundred and fifty thousand dollars, courtesy of a retroactive increase in the "maximum deposit insurance amount to $250,000." The rule was made retroactive beginning January 1, 2008. Pretty soon, all money ever lost, be it in bankrupt banks, or in bed investment will be recoupable, as the administration does everything it can to get some cash - any cash - in the hands of Joe Sixpack.

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Here's a slight answer:

http://www.zerohedge.com/article/attempt-r...-depositors-fai

Pretty soon, all money ever lost, be it in bankrupt banks, or in bed investment will be recoupable, as the administration does everything it can to get some cash - any cash - in the hands of Joe Sixpack.

 

The very sad thing is:

Our political leaders seem to think that by feeding cash to people, and thereby maintaining consumer DEMAND that they are helping the economy. They are not really thinking clearly about the STRUCTURE OF THE ECONOMY, and in particular, the needed balance between goods being produced and genuine needs.

 

The stupidity of the existing approach was glaringly obvious when they came up with "cash for clunkers." Everything about it shouted Malinvestment. Still servicable older cars - which were fully paid for! - were scrapped and replaced with expensive new cars, where the buyer is now stuck with a car payment. Some of these people may now be out of work, and be asking for another govt handout, so they can keep those payments up. What absurdity! This is no way to restore an economy to health. Instead, intelligent and PRODUCTIVE investments need to be made, and productive jobs created in industries that add something to the economy.

 

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Problem:

How do you get money into people's hands to cause inflation?

Answer: You ask the wrong question. No money needs to be in people's hand for prices to rise. When confidence wanes, money will lose value, no matter in whose hands it is.

 

EDIT: Keep in mind that in a hyperinflation no one ever has enough money. There is a general lack of money. That's why so much has to be created first place.

 

EDIT2: DrBubb comes into GF's corner store and ask how much the potatoes are. GF says: $X. Bubb says, oh, ok, but unfortunately I have no money. GF says, no problemo, come back tomorrow. Then, overnight, the Fed monetizes another trillion or two. DrBubb comes back next morning, and asks GF: how much are the potatoes. GF says: $3X. Bubb says, oh wow, that's suddenly very expensive, but unfortunately I still have no money at all. GF says, no problem, come back later. Meanwhile GF will sell the potatoes to the Fed's cantina and to Pimco's favourite restaurant, because the money is somewhere (for instance at Pimco, because they sold all their $h1te to the Fed), even if the 'people' don't have it.

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Answer: You ask the wrong question. No money needs to be in people's hand for prices to rise. When confidence wanes, money will lose value, no matter in whose hands it is.

 

EDIT: Keep in mind that in a hyperinflation no one ever has enough money. There is a general lack of money. That's why so much has to be created first place.

 

EDIT2: DrBubb comes into GF's corner store and ask how much the potatoes are. GF says: $X. Bubb says, oh, ok, but unfortunately I have no money. GF says, no problemo, come back tomorrow. Then, overnight, the Fed monetizes another trillion or two. DrBubb comes back next morning, and asks GF: how much are the potatoes. GF says: $3X. Bubb says, oh wow, that's suddenly very expensive, but unfortunately I still have no money at all. GF says, no problem, come back later. Meanwhile GF will sell the potatoes to the Fed's cantina and to Pimco's favourite restaurant, because the money is somewhere (for instance at Pimco, because they sold all their $h1te to the Fed), even if the 'people' don't have it.

Bubbs point is a good one. Asking "how to get money into people's hands" is another way of saying the velocity of money has collapsed. The less velocity money has, the less the value of money will have relative to goods and assets; you will have less money "chasing" X.

 

The quantity theory of money, where the value of money is denominated by the amount of units a central bank produces, is a fallacy being falsfied once again right before your eyes..... all seen before in lquidity traps.

 

The relative value of money is just as dependent on human behaviour.

 

If you're interested, read the Money Illusion Redux thread.

 

 

Edit: the loss of confidence is in debt not money per se.

 

The "way out" by central banks of infinite monet printing is blocked by bond vigilantes. Investors [and central banks] are now very cognizant of sovereign debt.

 

A currency resetting/ event is always possible but will not be hyper-inflationary. It would involve a rebalancing of currencies on the world stage.

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Bubbs point is a good one. Asking "how to get money into people's hands" is a colloquial way of saying the velocity of money has collapsed. The less velocity money has, the less the value of money will have relative to goods and assets; you will have less money "chasing" X.

 

The quantity theory of money, where the value of money is denominated by the amount of units a central bank produces, is a fallacy being falsfied once again right before your eyes..... all seen before in lquidity traps.

 

The relative value of money is just as dependent on human behaviour.

 

If you're interested, read the Money Illusion Redux thread.

 

 

Edit: the loss of confidence is in debt not money per se.

 

The "way out" by central banks of infinite monet printing is blocked by bond vigilantes. Investors [and central banks] are now very cognizant of sovereign debt.

 

A currency resetting/ event is always possible but will not be hyper-inflationary. It would involve a rebalancing of currencies on the world stage.

yes agree, there is some weird conceptions from the gold bug delusionary hyper-flat-balloons society that we all should buy the precious to feed the gold bubble

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